Social Networks and Trade Liberalization / Manish Pandey, John Whalley.

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Pandey, Manish

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10769.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

A1 - General Economics

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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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10769 (Browse shelf(Opens below))	Not For Loan

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Previous	nber w10766 Finance and Growth: Theory and Evidence /	nber w10767 Growth and Ideas /	nber w10768 The Impact of China on the Exports of Other Asian Countries /	nber w10769 Social Networks and Trade Liberalization /	nber w1077 Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data /	nber w10770 On the Industry Concentration of Actively Managed Equity Mutual Funds /	nber w10771 The Pre-Producers /	Next

September 2004.

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.