General Trading Costs in Pure Theory of International Trade

Sugata Marjit and Biswajit Mandal

MPRA Paper from University Library of Munich, Germany

Abstract: We use the HOS model of international trade to find a link between trading (including domestic trading or retailing) costs and pattern of trade, not just its effect on volume of trade. Even if we use symmetric iceberg type trading costs, unlike conventional unit cost approach, we generate relative price effects and prove that higher trading costs in labor-abundant countries will restrict volume of world trade by working against factor endowment bias and conversely for the capital-abundant nation if the trading sector is labor intensive and vice versa. Asymmetric trading cost between goods may have paradoxical output effects. Relatively capital-abundant country will be worse off with increasing trading cost, whereas once engaged in trade the labor-abundant country may gain from further increase in trading cost.

Keywords: International Trade; Factor-intensity; General equilibrium. (search for similar items in EconPapers)
JEL-codes: D5 F1 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: General Trading Costs in Pure Theory of International Trade (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:19290

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