《Network Intermediaries in International Trade》.pdf

Network Intermediaries in International Trade JAMES E. RAUCH University of California, San Diego La Jolla, CA 92093-0508 jrauch@ucsd.edu and National Bureau of Economic Research Cambridge, MA 02138 JOEL WATSON University of California, San Diego La Jolla, CA 92093-0508 jwatson@ucsd.edu Motivated by evidence on the importance of incomplete information and networks in international trade, we investigate the supply of network interme- diation. We build a general-equilibrium model in which agents with networks of foreign contacts either can use their networks themselves in support of production or can make their networks available for others to use and thereby can become network intermediaries. We use this model for comparative statics and welfare analysis. One welfare conclusion is that intermediaries may have inadequate incentives to maintain or to expand their networks, suggesting a rationale for the policies followed by some countries to encourage large-scale trading companies. 1. Introduction As classical barriers to international trade such as tariffs and trans- portation costs have fallen over time, researchers have focused in- creasingly on informal barriers to trade. One informal barrier is lack of information about international trading opportunities (Portes and Rey, 1999). An important way for firms to obtain information is to tap into the “deep knowledge” of intermediaries of the type described by This paper has benefited from discussions