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Trade, Development, and Political Economy presents: Bernardo Blum

112 Eggers Hall

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 Bernardo Blum University of Toronto The Nature of Trade Costs: Theory and Evidence In this paper we use a new data set of matched importer-exporter transactions for Chile and Colombia to document basic characteristics of the ways that trade is intermediated. We find that, in virtually every Chilean exporter-Colombian importer pair, at least one of the parties is a large international trader. Also, more than half of the Chilean exporters sell to only 1 Colombian importer. These exporters sell smaller amounts and fewer HS codes to Colombia and to the world but sell large amounts and more HS codes per importer. Also, they sell to importers that purchase larger amounts and more HS codes. Based on these characteristics, we develop a model of trade in which firms have access to multiple distribution technologies and choose a mode of distribution as part of the equilibrium. We show that a two- distribution technology model can capture the basic features of the data. Using this model, we explore the ways that changes in the trading environment, including trade reforms, impact trade costs and trading activity. Finally, we provide evidence in support of the models predictions.

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