Can Multistage Production Explain the Home Bias in Trade?

Yi, Kei-Mu

Can Multistage Production Explain the Home Bias in Trade?

American Economic Review, 2010, vol. 100, issue 1, 364-93

Abstract: A large empirical literature finds that there is too little international trade and too much intranational trade to be rationalized by observed international trade costs, such as tariffs and transport costs. This paper investigates whether a model in which the nature of production can change in response to trade costs -- a framework with multistage production -- can better explain the home bias in trade. The calibrated model can explain about two-fifths of the Canada border effect, about two-and-one-half times that of a model with one production stage. The model also explains a significant fraction of Canada-US "back-and- forth," or vertical specialization, trade. (JEL F11, F13, F14)

JEL-codes: F11 F13 F14 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/aer.100.1.364
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Citations: View citations in EconPapers (113)

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Working Paper: Can multi-stage production explain the home bias in trade? (2008)
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