Social Networks and Trade Liberalization

Manish Pandey and John Whalley

No 10769, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We discuss how social considerations can affect the desirability of trade liberalization in a conventional small open economy model. We consider a representative family in which there are location specific network effects from interactions with other family members, such as joint consumption, joint emotional support, and coinsurance. The benefits an individual receives from the network they participate in are nonlinearly related to the number of family members located in urban and rural areas. Family members choose whether to locate in urban or rural areas and average and marginal network benefits differ. With differential network effects in urban and rural areas, in a model with traded urban and rural goods, free trade will no longer be the best policy. We show this through a numerical example, and suggest that the conventional economists case for free trade may need to be more nuanced once social considerations of this type are taken into account.

JEL-codes: A1 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-net
Note: ITI
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Citations: View citations in EconPapers (7)

Published as Manish Pandey & John Whalley, 2009. "Social networks and trade liberalization," Applied Economics Letters, Taylor and Francis Journals, vol. 16(17), pages 1747-1749.

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