Wheat or Strawberries? Intermediated Trade with Limited Contracting

41 Pages Posted: 27 Oct 2014 Last revised: 16 May 2021

See all articles by Kala Krishna

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Lena Sheveleva

Cardiff University - Cardiff Business School

Date Written: October 2014

Abstract

Why do developing countries fail to specialize in products in which they appear to have a comparative advantage? We propose a model of agricultural trade with intermediation that explains how hold-up resulting from poor contracting environments can produce such an outcome. We use the model to explore the role of production subsidies, support prices, easing sanitary and phyto-sanitary (SPS) requirements, and the creation of local markets in resolving the hold-up problem. The model highlights the importance of infrastructure in aligning production with comparative advantage and sheds light on the pass-through of the world price to the producer.

Suggested Citation

Krishna, Kala and Sheveleva, Lena, Wheat or Strawberries? Intermediated Trade with Limited Contracting (October 2014). NBER Working Paper No. w20630, Available at SSRN: https://ssrn.com/abstract=2515208

Kala Krishna (Contact Author)

Pennsylvania State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Lena Sheveleva

Cardiff University - Cardiff Business School

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Cardiff, CF10 3EU
United Kingdom

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