Domestic trading costs and pure theory of international trade

Abstract

We use the HOS (Heckscher–Ohlin–Samuelson) model of international trade to find a link between trading (in particular domestic trading or retailing or domestic transport cost) costs, pattern of trade and volume of trade. Even if we use symmetric iceberg type trading costs, we generate relative price effects and prove that higher trading costs in labor‐abundant countries will restrict the volume of world trade and conversely for the capital‐abundant nation. Asymmetric trading cost between goods may have paradoxical output effects. A relatively capital‐abundant country will be worse off with increasing trading cost, whereas the labor‐abundant country may gain from further increases in trading cost.

Seeking Rent in the Informal Sector

“…Effectively, therefore, the capital constraint is more binding now while the labor constraint is less binding. This follows from Jones () and later Marjit and Mandal (). This implies where iff Y is labor intensive, which follows from the usual assumption.…”

“…Effectively, therefore, the capital constraint (4) is more binding now while the labor constraint is less binding. This follows from Jones (1965) and later Marjit and Mandal (2012). This impliesŶ…”

Legacy of Lionel McKenzie, 2

“…In the second article, Marjit and Mandal (2012) adopt the Heckscher–Ohlin–Samuelson model of international trade to find a link between trading costs, pattern of trade and volume of trade. Under the assumption of symmetric trading costs, they demonstrate that higher trading costs in labor‐abundant countries will restrict volume of world trade and conversely for the capital‐abundant nation.…”

Legacy of Lionel McKenzie, 1

“…In the first portion of this special issue, we have focused on Professor McKenzie’s contribution to dynamics and general equilibrium theory. In the next portion (Jones, Nishimura, and Yano 2012), we will present the contributions by Mukherji (2012), Herings and Polemarchakis (2012), Jones (2012), Marjit and Mandal (2012), Lu, Peng, and Ping Wang (2012), Bond, Iwasa, and Nishimura (2012), and Yano (2012), by focusing on stability, comparative statics, and international trade. Professor McKenzie’s vita will be presented there.…”