International Trade with Inattentive Importers

Jordi Mondria and Kunal Dasgupta
Additional contact information
Jordi Mondria: University of Toronto

No 1074, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Importers rarely observe the price of every good in every market because of informational frictions. In this paper, we aim to explain how the presence of such frictions shapes the pattern of trade across countries. To this end, we introduce rationally inattentive importers in the Ricardian trade model of Eaton and Kortum (2002). Our preliminary results show that importers of a particular good focus on processing information about a few countries, mostly closer ones, and ignore far away producers of that good. We highlight a new “extensive†margin of trade adjustment - the number of countries an importer pays attention to. In this setting, a reduction in trade costs has large effects on trade flows as importers re-optimize information processing across countries. Even with unbounded support for productivity distributions, the model generates bilateral trade zeros in both directions. We go on to examine the implications of inattention for welfare.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2013/paper_1074.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:1074

Access Statistics for this paper

More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().