Journal
INFORMATION ECONOMICS AND POLICY
Volume 37, Issue -, Pages 52-60Publisher
ELSEVIER
DOI: 10.1016/j.infoecopol.2016.10.002
Keywords
Information frictions; Search costs; Trade costs; Localized tastes; Product differentiation
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There is widespread evidence that geographical' borders reduce trade. This paper presents a theoretical model capable of providing a succinct comparison, of three broad forms of trade barriers involving i) trade costs, ii) localized tastes, and iii) information frictions. Despite being traditionally under-researched, it provides the stark finding that information frictions often generate the relatively more powerful marginal effect in reducing cross-border trade, and associated levels of welfare. This result remains robust under a number of extensions that further document the roles of product differentiation and alternative forms of trade costs. (C) 2016 Elsevier B.V. All rights reserved.
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