Efficient Implementation of the Stability Pact in the European Monetary Union. Prepared for the Economic Policy Panel Meeting, Frankfurt, April 1999. Anonymous Market and Group Ties in International Trade . This contrasts with the difficulties experienced by an unattached producer unfamiliar with the foreign environment. We build a simple general equilibrium model of trade that formalizes this observation.
Output is generated through bilateral matching of agents spanning a spectrum of types.
A minority of individuals has access to group ties that extend complete information to international matches. The existence of informational barriers reduces the volume of trade, and thus by increasing total trade group ties are beneficial to the economy as a whole. However, the ties have significant distributional effects because they modify the composition of the market. Only the more desirable types choose to match through the group, worsening the prospects of successful international partnerships for everybody else. The volume of trade and expected per capita income rise for group members, but fall for non-members.