Working Paper: NBER ID: w6186
Authors: Alessandra Casella; James E. Rauch
Abstract: When trade involves differentiated products, preferential ties to a group settled abroad facilitate an exporter's entry into the foreign market by providing information and access to distribution channels. This contrasts with the difficulties experienced by an unattached producer unfamiliar with the foreign environment. Inspired by the role of coethnic ties and business groups in East Asia, we build a simple general equilibrium model of trade that formalizes this observation. Output is generated through bilateral matching o agents spanning a spectrum of types. Domestic matching is perfect--every trader knows the type of all others and can approach whomever he chooses, but international matching is random--every trader lacks the information to choose his partner's type. However, group ties allow perfect matching abroad to a minority of individuals who have access to them and can decide whether or not to exploit them. We show that in the absence of ties the existence of informational barriers reduces the volume of trade. By increasing trade, group ties are beneficial to the economy as a whole, but have significant distributional effects. On average, group members benefit, but some may lose; non-members lose almost without exception, with the largest losses concentrated among those with the poorest domestic market niches.
Keywords: No keywords provided
JEL Codes: F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| group ties (C92) | increased trade volume (F19) |
| absence of group ties (Z13) | reduced trade volume (F19) |
| group ties (C92) | facilitate market access (F10) |
| informational barriers (L86) | reduced trade volume (F19) |
| group ties (C92) | increase trade efficiency (F19) |