Information frictions in trade

• Autores: Treb Allen
• Localización: Econométrica: Journal of the Econometric Society, ISSN 0012-9682, Vol. 82, Nº 6, 2014, págs. 2041-2083
• Idioma: inglés
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• Resumen

  • It is costly to learn about market conditions elsewhere, especially in developing countries. This paper examines how such information frictions affect trade. Using data on regional agricultural trade in the Philippines, I first document a number of observed patterns in trade flows and prices that suggest the presence of information frictions. I then incorporate information frictions into a perfect competition trade model by embedding a process whereby heterogeneous producers engage in a costly sequential search process to determine where to sell their produce. I show that introducing information frictions reconciles the theory with the observed patterns in the data. Structural estimation of the model finds that information frictions are quantitatively important: roughly half the observed regional price dispersion is due to information frictions. Furthermore, incorporating information frictions improves the out-of-sample predictive power of the model.