Import search and the path dependency trade

2006-06-02T15:25:48Z (GMT) by Huw Edwards
This paper investigates the implications of imperfect information and matching/searching for international trade theory. I develop an illustrative model where firms fund such partners by a search through successive matches. The consequences include linking today's import demand patterns to past changes in costs, protection and interest rates. Today's policy decisions will likewise affect future trade. Trade diversion from a preferential trading agreement may well persist as informational diversion well after the preferential agreement has been scrapped. This has important implications for the timing of trade liberalisation.