International Trade: Issue 2

Market-level distortions, such as poorly functioning credit or labour markets, are extensive and well documented in developing countries. These distortions make it difficult for firms and workers to take advantage of trade opportunities and thus directly alter the magnitude of the gains from trade. Relatedly, economists have long known that in the presence of such distortions, reducing trade barriers such as tariffs (themselves a distortion) can actually lower welfare by exacerbating these other distortions (Bhagwati and Ramaswami 1963). Thus, the possibility that trade magnifies or alleviates existing distortions is particularly relevant for the developing world.

We summarise recent empirical work that explores how trade barriers affect economies in the presence of factor market distortions. We further consider the emerging literature that studies the implications of information and knowledge frictions. Although the distinction is sometimes murky, here we restrict attention to market-level distortions that equally constrain all firms in the economy. In Section 5 we turn to firm-level distortions that differentially affect certain firms (or possibly sectors) and so lead to misallocation and justify firm-specific interventions.

Labour markets, human capital and trade liberalisation

Standard trade models typically abstract from labour market frictions, unemployment, job quality, and informality. Yet, these elements are at the heart of policymakers’ concerns with global integration.

A large body of evidence amassed in the past decade—focusing on the experience of developing countries with trade liberalisation episodes—has shown that exposure to import and export competition can lead to substantial changes in the labour market. This literature has emphasised that increases in import competition have geographically concentrated impacts, induce unemployment in the short to medium term, and displace workers from manufacturing toward low-paying service or informal jobs. A smaller set of work has focused on export market liberalisation.

Partly as a result of this evidence, further research has honed in on specific labour market frictions that interact with trade reforms—either because a friction directs impacts onto certain groups, or because trade magnifies or shrinks a distortion. As we emphasise both here and in Section 4.1, one key market failure in developing countries, which starkly contrasts with richer economies, is the high prevalence of an informal sector. Other important frictions include barriers to migration, firm labour market power over workers (oligopsony), worker and firm rents, the presence of minimum wages and firing restrictions, positive externalities from agglomeration, and negative externalities from unemployment or employment in criminal activity.

We begin by discussing more recent reduced form work before highlighting more structural exercises. For a complementary discussion that predates ours, see Goldberg and Pavcnik (2007) and Goldberg and Pavcnik (2016).[1]1. That survey also extensively covers the literature examining why (Stolper-Samuelson) predictions that trade would reduce inequality in developing countries did not materialise. We omit re-reviewing these papers here.

Topalova (2010) pioneered the estimation of local labour market effects of trade, exploring the Indian trade liberalisation episode of the 1990s. The main insight is that different regions of a country are specialised in different industries. Therefore, if tariff reductions vary across industries, liberalisation should have uneven effects on labour demand across locations. She finds that regions specialised in goods facing larger tariff declines experienced larger poverty reductions relative to the national average. Exploiting this cross-regional variation within a country to examine the impacts of national trade reforms or shocks has become known as the “local labour markets approach.” Kovak (2013) rationalises (and amends) Topalova’s specification with a specific-factors model of regional economies and shows a similar result in the context of the Brazilian trade liberalisation: even ten years after the start of the liberalisation process, regions more exposed to tariff declines experienced relatively larger reductions in wages.[2]2. Estimates of local impacts are only informative about relative effects: how outcomes of places very exposed to shocks evolve relative to outcomes of places less exposed to shocks. See Adao et al. (2021) for methods that can be used to obtain aggregate effects. In this section, we sometimes drop the adjective “relative” in the interest of clarity of exposition.

The results in Topalova (2010) and Kovak (2013) point to very long-lasting effects of liberalisation on local wages. This evidence points to potential migration frictions: are workers slow to move away from regions with declining labour demand? Dix-Carneiro and Kovak (2017) revisit the Brazilian trade liberalisation episode and find that regions more exposed to tariff cuts experienced slow-moving and large long-run declines in formal employment relative to the national average, consistent with workers being immobile in the short run and slowly moving away. However, while delayed migration should lead wages in affected regions to recover over time, Dix-Carneiro and Kovak (2017) instead find that the long-run (15 year) negative wage effects in the formal sector are three times as large as medium-run (5 year) effects. They investigate potential mechanisms and find that a combination of capital slowly moving away from relatively hard-hit regions coupled with local productivity declines due to agglomeration economies can explain these patterns. Thus, in the Brazilian case, a combination of frictions—migration frictions, imperfect short-run capital markets, and (the loss of) agglomeration externalities—exacerbated the negative effects of foreign competition.

Felix (2021) investigates an alternative mechanism through which the Brazilian trade liberalisation could have led to lower wages in more exposed regions: firm labour market power. She documents an increase in employment concentration at larger firms in exposed regions, and then estimates a model of imperfectly competitive local labour markets to show that: (a) Brazilian firms command large market power over their workers, substantially marking down wages; and (b) wage markdowns indeed increased in these harder-hit regions, but that this channel only explains 2% of the effect of tariffs on wages. Nonetheless, recognising that firms can exert substantial labour market power over their workers is a topic that deserves further attention.

Dix-Carneiro and Kovak (2019) show that while initially these trade shocks create unemployment, eventually employment recovers. However, manufacturing workers are displaced into low paying service sectors and informality, with non-manufacturing workers similarly affected by these trade shocks: both because local demand for non-tradable services decreases, but also because their sectors are flooded by former manufacturing workers. There is no indication that workers responded to these deteriorating local conditions by migrating to less-affected regions. As a result, the presence of a (typically inefficient) informal sector may have partially mitigated the negative effects of trade reform on workers. This hypothesis is corroborated by Ponczek and Ulyssea (2022) who investigate how the effects of liberalisation differed across regions with varying degrees of enforcement of labour regulations. They find that the effect of liberalisation on unemployment is larger and the effect on informality is lower in regions that are more tightly monitored and audited by the Ministry of Labour. The interpretation is that, in regions where labour inspections are more frequent, firms and workers have less wiggle room to smooth adverse shocks by moving to the informal sector and lower their costs. Instead, they tend to leave the market/employment altogether.

The local labour markets approach has been used in a variety of other contexts and countries to study shocks to import exposure and also to examine the impacts of shocks to export opportunities. For example, the 2001 US-Vietnam Bilateral Trade Agreement (BTA) expanded market access for Vietnamese exports, and McCaig (2011) finds that regions more exposed to tariff cuts on exports experience wage increases, particularly for workers with low levels of education.[3]3. Cheng and Potlogea (2018) and Erten and Leight (2021) study the impact of WTO accession on China's labour markets. See also papers by Erten et al. (2019), McCaig and McMillan (2019), and Costa et al. (2016) for impacts of trade on labour markets in South Africa, Botswana, and Brazil, respectively.  Through the lens of our standard trade models, this is the other side of the same coin. Trade liberalisation creates winners and losers with much of the literature comparing the expected losers (those exposed to greater import competition) to the rest of the economy rather than comparing the expected winners to the rest of the economy (those exposed to greater export opportunities).

This reasonably consistent set of reduced-form findings have motivated researchers to develop structural models of the labour market that recover the underlying parameters governing the labour market frictions. These papers have focused on measuring frictions and costs workers face in response to labour demand shocks, and on the implications of these frictions for the adjustment process and the distributional effects of trade. Some of these papers also use their frameworks to analyse the impact of active labour market policies and their effectiveness in smoothing labour market outcomes.

Dix-Carneiro (2014) outlines a model featuring heterogeneous workers who choose which sector to work in and have differing comparative advantages across sectors. Their sectoral choice reinforces this comparative advantage, making them less likely to move in response to sector-specific shocks. The model also features overlapping generations with younger workers potentially having higher levels of mobility. Estimation using Brazillian data reveals that workers face important mobility costs in switching sectors but these are very heterogeneous; e.g. older and unskilled workers face larger intersectoral mobility costs (and hence larger losses from shocks affecting their industries). The model predicts a slow adjustment process following trade liberalisation generating significantly lower gains from trade. Turning to policies designed to compensate losers, subsidising workers in adversely affected sectors to switch sector tends to outperform policies that retrain workers to enter new sectors.

Artuc et al. (2015) estimate intersectoral mobility costs for a large sample of countries and investigate their consequences for the adjustment process. They estimate that mobility costs are very dispersed across countries, but that they tend to be larger in countries that are poorer and with lower-quality labour markets. Consequently, poorer countries tend to face larger labour adjustment costs in response to globalisation shocks.

An additional friction that can affect the gains from trade is the presence of rents to be bargained over. Firm-level data reveal substantial differences in wages across firms, conditional on worker characteristics. In particular, wages tend to increase with firm-level productivity and export status. Helpman et al. (2010) propose a model where wage inequality can increase across firms within worker groups when trade costs change. Helpman et al. (2017) estimate such a model and target some of these salient patterns in the Brazilian data. They estimate that 25% of the 1986-1995 increase in wage inequality in Brazil is explained by the tariff declines triggered by the 1990s trade liberalisation.[4]4. In another line of work, Adao (2016) estimates a flexible Roy model with heterogeneity in worker's comparative and absolute advantage and concludes that the commodity boom of the 2000s was responsible for up to 10% of the decline in wage inequality in the country between 1990 and 2010.

In related work, Coşar et al. (2016) observe that many economies that opened to trade in the 1970s through the 1990s experienced large increases in the volume of trade relative to GDP, and, at the same time, increases in unemployment, job turnover and wage inequality. However, trade costs were declining worldwide and many of these economies implemented a variety of concomitant reforms. For example, Colombia reduced tariffs in the 1980s and 1990s, but also reduced the costs firms faced to dismiss their workers. To understand the relative contributions of the labour and trade reforms and of globalisation, more broadly, they develop a model of trade with heterogeneous firms, firm dynamics, search frictions and firing costs. They find that globalisation forces, beyond the tariff reform, were the main drivers of the rapid reduction of job security and increasing inequality in Colombia. This latter result parallels conclusions by Helpman et al. (2017) in the Brazilian data. Relatedly, Ruggieri (2021) investigates how labour market regulations shape the dynamic responses to trade reforms. He fits a model similar to Coşar et al. (2016) to Colombian and Mexican data and finds that minimum wages and firing costs can significantly modulate how unemployment responds to trade shocks in the short run. In particular, the presence of minimum wages can lead to a large short-run response of unemployment to trade liberalisation.

Finally, recent papers have also shown that shifts into informality and non-employment constitute important margins of adjustment to trade. We return to these interactions between trade and informality when discussing firm-level distortions in Section 5.1.

Beyond employment and wages: How does trade liberalisation impact public goods and crime?

There is also evidence that trade affects the labour market beyond employment and wages. First, trade shocks can impact skill acquisition, particularly of adolescents who are not yet in the labour market. Second, local economic shocks induced by trade liberalisation have been associated with changes in the provision of public goods and crime. Finally, trade liberalisation has also been shown to have affected labour market institutions and regulations. Since human capital, crime, and regulation may all involve some spillovers, all three may be ex-ante inefficiently chosen, and whether trade worsens or improves any particular inefficiency is an empirical question.

Several papers document that opening to trade affects educational attainment, though the direction of the effect depends on the skill level of jobs required. Atkin (2016) shows that cohorts of teenagers in Mexican commuting zones that were exposed to new export opportunities created by maquiladora assembly plants experienced slower growth in educational attainment. Importantly, tasks conducted in the maquiladoras do not require very sophisticated skills yet pay relatively high wages to workers straight out of school. In contrast, Oster and Steinberg (2013) find that IT centres in India—a form of high-skilled service exports—raise enrollment in English-language schools. Finally, Blanchard and Olney (2017) use panel data on 102 countries over 45 years to document that export growth is associated with greater (fewer) years of schooling when the exports are high (low) skill-intensive. Though it is not obvious whether this investment is efficient (especially once we account for human capital externalities, credit constraints in education, and high levels of myopia among teenagers), the evidence does suggest that trade exposure is a quantitatively important determinant of education levels.

Criminal activity may also respond to trade shocks. Dix-Carneiro et al. (2018) show that the regional shocks induced by the Brazilian trade liberalisation episode were associated with: (a) lower government revenue and spending; (b) increases in high school dropouts; (c) declines in public safety personnel; and (d) increases in crime. These results show that trade shocks can lead to substantial adjustment costs beyond those directly affecting displaced workers, creating important externalities in various communities. In particular, the paper exploits variation in dynamic responses across variables to argue that most of the crime effects of liberalisation were mediated by the labour market. Dell et al. (2019) draw similar conclusions when examining the impacts of local labour market disruptions caused by the Chinese export growth on cocaine trafficking and violence in Mexico. These effects on crime are concerning as previous work has shown that crime and violence can also lead to reduced education attainment (see Monteiro and Rocha 2017).

Finally, Tian (2022) shows that trade liberalisation can also influence labour market regulations. China has traditionally regulated rural to urban mobility to a significant extent through the Hukou system. However, regions facing larger export expansions, and in great need of migrant labour, enacted more migrant-friendly regulations.

The body of work discussed in this section points toward rich and nuanced labour market impacts of trade. One fruitful area for research involves incorporating agglomeration economies and frictions for the mobility of both workers and capital into our models of trade (e.g. see recent work by Artuc et al. 2022 using Argentinian data). Finally, given the overwhelming evidence that trade shocks disrupt labour markets and lead to diverging outcomes across workers, it is necessary to better understand the optimal policy response for developing countries.[5]5. One of the few studies in this area focuses on the United States' experience with the Trade Adjustment Assistance (TAA) programme. Hyman (2021) shows that TAA was able to substantially smooth the short-to-medium-run outcomes for trade-displaced workers, increasing their earnings and employability.  More evidence on active labour market policies in developing countries is very much needed as well as work understanding and quantifying the general equilibrium consequences of scaling up these policies.

What we’ve learned from this work is that increased levels of trade can disrupt the labor market with the losers particularly concentrated in regions more exposed to import competition. Workers in both tradable and non-tradable sectors are similarly affected and the adjustment process can take several years to materialise, involving shifts into the informal sector or unemployment.

However, we still know little about how to mitigate these adverse labour market effects of trade. This is crucial as governments considering trade liberalisation would ideally design mechanisms to ease these effects, ensuring a more inclusive and sustainable pro-trade agenda. Most of the literature on active labor market policies does not account for large shocks that can significantly alter the balance between sectors and regions, leaving considerable scope for further research in this area. 

Gender-specific impacts of trade

You can read more about this topic in our VoxDevLit on Female Labour Force Participation (Heath et al. 2024).

A growing body of research examines how globalisation affects gender inequality in developing countries, a topic surveyed in more detail by Dix-Carneiro and Kovak (forthcoming). One approach considers men and women as distinct yet complementary factors of production. If industries employ male and female labour at different intensities, trade liberalisation might influence gender gaps through standard Heckscher-Ohlin/Stolper-Samuelson mechanisms. However, this perspective seems unsatisfying, as few technologies treat male and female labour as separate inputs. A more realistic framework would involve complementary skills such as physical vs. cognitive abilities, which men and women tend to possess in different proportions, leading to occupational sorting (as in a Roy model). Another possibility is that globalisation pushes firms to adopt new technologies that alter the required skill sets, affecting returns for different types of workers. A third mechanism suggests that while men and women may have similar skills, they might prefer different industries or face different barriers to switching jobs. Lastly, globalisation could reduce gender gaps by increasing competition, making gender-based discrimination more costly for employers.

Trade's impact on gender-specific labour market outcomes is often examined using a local labor markets approach. Authors have then analysed the differing impacts of these local exposure measures across men and women. Examples include Gaddis and Pieters (2017) in the context of Brazil’s trade liberalisation episode; Mansour et al. (2022), who study the impact of Chinese import competition in Peru; Ben Yahmed and Bombarda (2020), who analyse the gender-specific impacts of NAFTA-induced tariff reductions in Mexico; and Chong and Velasquez (2024), who examine Peru’s tariff reductions and their effects on gender-specific labour market outcomes, alongside their consequences on intimate partner violence. However, the results of these papers are not necessarily consistent with each other, with some pointing towards import competition narrowing labour market gaps between men and women, and others indicating widening gaps. This may partly reflect the fact some research designs use region-wide exposure, while others gender-specific regional exposure. 

Globalisation can also affect gender gaps within industries through technology adoption. If new technologies, such as automation, favour tasks requiring less physical strength, they can influence gender disparities. Aguayo-Tellez et al. (2014) find that Mexican industries seeing larger US tariff reductions experienced a rise in female employment and wages. Juhn et al. (2014) attribute this finding to technology adoption, particularly in blue-collar jobs, where automation benefited women more, while white-collar jobs showed no gender difference.

Our canonical trade models assume costless labour mobility across industries, but the impact of globalisation on gender inequality may depend on the costs men and women face when switching industries or employers. Brussevich (2018) finds that Chinese imports reduced the US gender wage gap, as men were more concentrated in goods-producing industries facing import pressure and had higher transition costs into services compared to women. In Brazil, Sharma (2023) studies firm-specific demand shocks resulting from the end of the Multifiber Arrangement and shows that women were substantially less likely than men to leave their employer following a wage cut and consequently did not see their incomes recover. Estimating a model of monopsony power, she concludes that although the textile industry provides women desirable jobs, this desirability (or the mistreatment they face in manufacturing sectors outside of textures and apparel) confers these employers with higher monopsony power over women than men. Gender-specific preferences for types of jobs and the market power they give employers remain an underdeveloped area of research.

The final mechanism explored in the literature is taste-based gender discrimination. If trade liberalisation increases competition, firms that discriminate may be forced to reduce such practices or exit the market. Ederington et al. (2024) find that exporting plants in Colombia had a higher share of female workers, and those facing more import competition increased their female workforce. This suggests that competitive pressure forced discriminatory firms to reduce bias.

While there is growing work studying globalisation’s differential impact on gender, the literature still lacks a theoretically sound framework with which to study the gender-unequal impacts of trade. Promising avenues could recognise that men and women have different bundles of skills and preferences for jobs and face different levels of discrimination within different professions, leading to sorting into sectors and occupations based on these differences. Gender differences in preferences across jobs and types of employers can also lead to labour market power differences across genders. as in Sharma (2023). This would provide a rich framework for analysing the gender-specific impacts of globalisation.

Functioning capital markets are crucial for unlocking trade

Capital markets in developing countries significantly interact with trade in two primary ways: through financial market failures and through distortions in the markets for physical capital, both of which are particularly pronounced in these contexts. 

Financial market failures are a major theme in development economics, as they limit firms' access to scarce capital (e.g. Djankov et al. 2007). In particular, credit constraints have particular impacts on trade flows for two reasons. First, credit is a vital lubricant for trade, as inputs must be purchased and goods dispatched long before the producer receives final payment. Second, the trade literature highlights that importing and exporting products require substantial upfront fixed costs. For example, Das et al. (2007) estimate that the fixed costs for a Colombian chemical factory to enter a new market exceed $1 million.[6]6. Much of the recent work on credit constraints in trade treats the distortion at the market level, rather than as a size-dependent distortion. The latter introduces the possibility that capital is misallocated across firms; see further discussion in Section 4. For example, Bau and Matray (2023) use a natural experiment in India to show that foreign capital liberalisation reduces capital misallocation and increases aggregate productivity.

A growing body of work explores how credit constraints interact with international trade through these fixed costs.[7]7. See Foley and Manova (2015) for a more comprehensive review.  If firms are constrained in their access to finance, it is straightforward to see how capital market distortions raise the barriers to trade. Manova (2013) formalises this argument in a heterogeneous firm model of trade. In her framework, firms require external financing to cover the fixed costs of exporting, and credit constraints raise the productivity cutoff necessary for firms to enter the market. As such, credit constraints impact not only firms’ export volumes but also the selection of firms that enter into exporting. Paravisini et al. (2015) extends this line of inquiry by studying the large credit supply shock Peru experienced during the 2008 global financial crisis. They exploit data on firms’ relationships with banks to show that firms linked to shocked banks reduced their exports to existing clients. Finlay (2024) further investigates this issue by studying a natural experiment on a policy change in India aimed at expanding lending access to smaller firms with capital below $1 million. His findings suggest that, in the short run, a directed credit policy that eased financial constraints for manufacturing firms enabled exporters to expand but had no impact on firms selling only in the domestic market. This indicates that credit constraints are more binding for exporters than for non-exporters. 

In addition to influencing export decisions, financial constraints can impact other trade-related investment choices, such as quality upgrading. For example, Krishna et al. (2023) show that countries with greater financial depth tend to have both higher average and greater variance in product quality growth. Moreover, there is much more to learn about how capital frictions and international trade interact in general equilibrium. One recent push on this front comes from Leibovici (2021), who, using Chilean data, shows that while financial frictions have a significant impact on international trade at the industry level, they have a minor impact in the aggregate.

While all these studies establish the importance of credit constraints, assessing their quantitative impact is challenging because credit-constrained firms differ from unconstrained firms along many dimensions. The most direct way to assess potential biases would be through randomised trials that provide a subset of firms with liquidity to assess the impacts on those firms’ exports. Research in this direction is needed yet scarce. A notable exception is Ali and Verhoogen (2024), in the context of Tunisia, who perform a randomised control trial to assess the impact of subsidising a firm’s export business plan or office abroad on market expansion.

Besides these direct effects described above, recent work has examined how financial market failures can hinder gains from trade due to input-output and banking sector linkages. Brooks and Dovis (2020) theoretically show that financial market imperfections could hamper the benefits of trade liberalisation if debt limits do not adjust to profit opportunities. However, using Colombian data, they find evidence that financial markets do respond to reforms, supporting a model of endogenous debt limits. In Turkey, Demir et al. (2024) study the impact of financial constraints on the transmission of an unexpected import-tax increase through the production network. They find that this relatively small shock significantly affected exposed firms and spread downstream to their suppliers. Notably, firms with low liquidity intensified the shock's transmission. Additionally, Paravisini et al. (2023) find that borrowers seek credit from banks specialising in their export destinations, both when expanding exports and entering new markets. This indicates that firm credit demand is specific to banks and activities, reducing banking competition and affecting the transmission and amplification of shocks through the banking sector.

In addition, to bypass financial constraints, firms in emerging markets rely extensively on non-traditional sources of financing, such as trade credit. However, despite its potentially central role in facilitating trade and anecdotal evidence that suggests great difficulties and costs to obtain such credit in the developing world, trade credit gets little attention from academics and policy makers. Notable exceptions are Benguria et al. (2023) who shows for Chile and Colombia that trade credit use increases with firm-to-firm relationship length. Thus, an additional benefit of long-term trade relationships is the ability to save on financing costs using trade credit.

Finally, another less-studied friction related to financial capital markets is currency invoicing behaviour. Gopinath (2015) reports that most developing countries’ imports and exports are invoiced in a foreign currency, typically the US dollar. This has significant implications for the transmission of exchange rate shocks to border and domestic prices. Imports priced in the producer's currency will exhibit a high exchange rate pass-through in the short run (Gopinath et al. 2010), making the inflation rate more sensitive to exchange rate fluctuations in countries where imports are invoiced in a foreign currency (and exports less sensitive). Messer (2022) examines what would happen if countries were to adopt a local currency payments system (SML) by examining a 2008 agreement between Brazil and Argentina. He finds that eliminating foreign currency risk had a substantial effect: Brazilian municipalities with high access to the SML system exported 22% more to Argentina compared to other South American export destinations, relative to municipalities with low access. Yet, the motivations for and implications of currency invoicing, financial and operational hedging strategies, and foreign currency borrowing have largely remained outside the purview of the trade and development literatures. 

While the trade literature has focused on capital frictions related to the financial market, which limit firms’ investment ability, capital frictions that relate to the reallocation of physical capital, have been considerably less studied. These may be equally pervasive in the developing world due to imperfect secondary markets and lack of scale. Since the ability to downsize is key to trade-induced factor reallocations, this type of friction might have important industry and aggregate implications on how firms and countries respond to trade shocks. For example, using Peruvian apparel data, Medina (2022) shows that when capital is firm-specific (i.e. fixed in the short-run), an import-competition shock leads firms to reallocate idle capital within the firm and undertake costly investments such as quality upgrading and exporting. Moreover, considering the Peruvian manufacturing sector, Lanteri et al. (2023) find that, with partial irreversibility of capital, an import-competition shock induces a temporary aggregate-productivity loss and an increase in misallocation due to investment inaction and exit of some productive firms. We see future work in this area as a promising avenue for research, particularly in understanding capital adjustments and transitional dynamics in response to trade shocks. Similarly, another fruitful research direction involves exploring how physical capital reallocates across countries and the distortions affecting international trade of machinery and equipment.

In summary, financial market failures and inefficiencies in physical capital markets—pervasive in emerging economies—distort the impacts of trade. Financial market failures limit firms' access to scarce capital, affecting trade flows by restricting the credit needed for purchasing inputs and covering substantial upfront costs for importing and exporting. Research highlights that credit constraints raise barriers to trade, impacting export volumes, firm selection, quality upgrading, the propagation of shocks, and vulnerability to exchange rates. Additionally, inefficiencies in the reallocation of physical capital, particularly in developing economies with imperfect secondary markets, have important implications on firms’ responses to trade shocks during the transition to equilibrium.

Material markets: Inputs from abroad are crucial for domestic firms looking to export

Sourcing intermediate inputs from abroad is crucial for many industries, particularly as goods and services become more complex. Trade integration enables firms to access a wider range of specialised inputs, often at lower costs, enhancing their competitiveness and efficiency. However, in developing economies, this process is fraught with challenges that can significantly hinder their participation in global supply chains. Historical self-imposed policies and inherent market distortions further complicate sourcing efforts. Therefore, it is essential for academics and policymakers to understand the factors affecting supply chains in developing economies and how these factors interact with global integration.

Between the 1950s and 1980s, many, if not most, developing countries pursued import substitution policies that placed onerous restrictions, high tariffs or outright bans on importing key intermediate inputs that were seen as stepping stones to industrialisation (Krueger 1984, Irwin 2019). Given the failures and later abandonment of these policies, it is likely that they induced substantial distortions to input markets by raising the cost of key intermediates and, in many cases, cutting off the supply of high-quality intermediates to the domestic market.

Consequently, a large body of work has examined the impacts of major liberalisations in the 1990s and 2000s, which removed these barriers and prohibitions on input trade. The scope of these trade liberalisations on input trade and their impacts are substantial. For example, Goldberg et al. (2009) note that India’s much-studied unilateral trade reforms in the 1990s primarily reduced tariffs on imported inputs, and that most imported inputs were products and varieties not previously imported.

The initial body of research highlighted the effect of input trade liberalisation on productivity. Amiti and Konings (2007) and Topalova and Khandelwal (2011) demonstrate productivity improvements resulting from input tariff cuts by constructing firm-level exposure to input tariffs using input-output tables in Indonesia and India, respectively. Halpern et al. (2015), using Hungarian data, document that imported inputs are imperfect substitutes for domestic inputs and of higher quality. Imported varieties raise firms’ revenue productivity, and they attribute one-quarter of Hungarian productivity growth during the 1993-2002 period to the increased use of imported inputs.

Subsequent research has delved into the link between intermediate inputs and various measures of firm performance, highlighting how access to a new array of cheaper and higher-quality inputs enhances firm outcomes. Goldberg et al. (2010) provide evidence that lower input tariffs expanded the range of domestic products manufactured by Indian firms. Their evidence shows that access to new imported varieties, rather than price declines of existing inputs, were key, and De Loecker et al. (2016) demonstrate that these lower input tariffs reduced output prices. Gopinath and Neiman (2014) exploit the 2000–2002 Argentine peso depreciation to demonstrate that worsening terms of trade can generate large productivity losses, as higher import costs of inputs raise output prices and reduce firms’ scale. 

The link between access to foreign inputs and quality has received particular attention. Kugler and Verhoogen (2009) show that Colombian plants procure higher-quality inputs from the import market compared to the domestic market and Kugler and Verhoogen (2012) provide a theoretical foundation and empirical evidence supporting the key role of input quality in producing output quality. Fieler et al. (2018) demonstrate that access to higher quality imported inputs is quantitatively relevant in understanding the increase in skill intensity among Colombian manufacturing firms following the 1991 trade liberalisation. Similarly, Bas and Paunov (2021) show a comparable result for Ecuador. Bas and Strauss-Kahn (2015) find that Chinese firms leverage the reduction in input tariffs resulting from China’s WTO accession to access high-quality inputs and upgrade the quality of their exports. Fan et al. (2015) present an analytic framework for a similar finding in China. There is also mounting evidence that importing high-quality inputs spurs exports from developing countries, as exemplified by Bas (2012), Manova and Zhang (2012), among others.

While this research has yielded valuable insights, an underexplored aspect is the interaction between trade and the frictions in developing countries that hinder the global input sourcing process. This aspect is particularly critical, highlighted by Bai et al. (2024), who demonstrate that in second-best environments, trade can lead to welfare losses when gains are offset by income losses due to exacerbated input distortions.

One such friction that appears to be more significant for input sourcing in developing countries is weak contract enforcement. Boehm and Oberfield (2020) provide evidence of this by showing that Indian manufacturing firms' production and sourcing decisions are systematically distorted in states with weaker contract enforcement. Similarly, Boehm et al. (2022) demonstrate how input-based comparative advantage determines product diversification in the same context. In a trade context, Chor and Ma (2021) show that contracting frictions impact global input sourcing, through their influence on both the sourcing choices of domestic producers and the exports of domestic firms producing intermediate inputs.

Another important­ yet understudied friction in global input sourcing is the existence of imperfect competition. Recent literature has highlighted the existence of market power in factor markets, including intermediate inputs. While Morlacco (2019) reveals that French manufacturing firms (buyers) wield market power in input markets, reducing the gains from input trade, similar analyses in the developing world are scarce. A recent exception is the study by Blum et al. (2023), which demonstrates that the availability of intermediate input trade through wholesalers enhances aggregate productivity and welfare while reducing market concentration and markups, based on Argentinian and Chilean trade data. Atkin et al. (2024), discussed in Section 4.5, shows that foreign exporters are systematically more likely to hold market power over Argentinian importers when they are from relatively richer countries.

Research on these topics remains limited, but recent access to firm-to-firm transaction data, often sourced from value-added tax records, can provide a clearer view of buyer-supplier interactions within production networks. Most research has concentrated on developed countries (e.g. Bernard and Moxnes 2018), where input market frictions and distortions are generally smaller compared to developing countries. However, as more developing countries open up access to such datasets, our understanding of how input market distortions, and their interaction with trade, influence firm sourcing strategies is expected to improve further.[8]8. An important caveat is that these data almost always miss transactions with and among the informal sector, with the Indian example studied in Gadenne et al. (2019) an exception.  Recent studies utilising this data already underscore the critical role of intermediate input networks. Huneeus (2019), for example, illustrates how trade shocks propagate through Chilean production networks, driven by frictions in finding new buyers. Meanwhile, Adao et al. (2022) emphasise in Ecuador the pivotal role of imported intermediate inputs in assessing how trade exposure affects workers.

Regarding policy implications, a recent and complementary theoretical literature explores the possibility that input market distortions, which could include trade barriers but also contractual frictions and imperfect competition, can compound over input-output linkages (e.g. see Liu 2019). This implies that targeting distortions with high “distortion centrality”, which are typically those in upstream sectors, can deliver large improvements in aggregate productivity. Bringing this literature together with the firm-to-firm transaction data described above as well as customs data is a promising area of future research.

Finally, another crucial issue is the lack of essential data to quantify baseline input misallocation and the impact of trade. Detailed datasets on input usage per product, whether imported or domestic, are vital for advancing research in this area. However, obtaining such granular data from medium and large firms—those engaged in international trade—poses a significant challenge for researchers and policymakers in developing countries.

Overall, there is overwhelming evidence—established through early episodes of trade liberalisation—that improvements in input allocation yield significant benefits for firm performance in developing economies, stemming from better access to inputs. However, further research and more detailed data are needed to explore how existing distortions in developing countries affect global sourcing and gains from trade. Understanding these channels is essential for crafting effective policies for today's world.

Land, energy and other factor market distortions that reduce trade

A large literature has established that developing countries are plagued by unenforceable or customary property rights, expropriation risk, and poorly-functioning land-titling systems, all of which impede land transactions (Besley and Ghatak 2010). There are additional bureaucratic hurdles and red tape that prevent converting the usage of land (e.g. from agriculture to manufacturing). For example, Chari et al (2021) find that when China provided legal rights to lease agricultural land through the 2003 Rural Land Contracting Law, land was reallocated towards more productive farmers. Electricity is an equally important input into production that is unreliable and either expensive or rationed due to a combination of poor regulation, transmission losses, and political failures that allow nonpayment or outright theft. Ryan (2021) provides evidence that transmission contracts in India’s wholesale electricity increased market power for sellers that raised the cost of electricity. Allcott et al. (2016) show that electricity shortages in India reduce scale and distort the firm size distribution. These issues, as well as other issues such as access to water, raise input costs and constrain the ability of firms in the developing world to achieve scale economies, and thereby compete successfully on international markets (see Abeberese et al. 2021 for evidence from India). However, we are not aware of work that specifically explores how these constraints interact with trade.

One policy response to overcome these factor market distortions has been to create special economic zones (SEZs) or industrial parks. Despite their costs and uncertain benefits, these place-based policies have become a prominent policy used by governments to attract foreign investment and to spur exports (Duranton and Venables, 2019). In developing countries, SEZs serve to address multiple market distortions by lowering trade and regulatory costs (through one-stop shops that reduce bureaucratic red tape or special tariff regimes), by facilitating access to land and reliable electricity, and, in some cases, by allowing for more flexible labour regulations (Khandelwal and Teachout 2016). Yet, despite their widespread use, SEZs have not been extensively studied in the international trade literature. Notable exceptions are Wang (2013), who finds positive impacts of SEZs on Chinese municipality exports, FDI, and wages, and Alkon (2018) who finds that India’s SEZs have largely failed to trigger improvements in socio-economic outcomes. In contrast, Gallé et al. (2024) find that SEZs in India triggered structural change from agriculture into manufacturing with women particularly benefiting. Zones are subject of intense interest among policymakers (e.g. World Bank 2017, UNCTAD 2019), yet we have very little systematic evaluations of their costs, benefits and overall impacts.[9]9. Grant (2020) makes progress on this question using US data, noting that many SEZs give selective exemptions to tariffs and other regulations for certain firms and industries, which may have distributional consequences as well as ambiguous aggregate welfare implications at both the national and international levels.

Garg (2025) is a fresh contribution that advances our analysis of industrial zones, pointing out that industrial parks may not just improve fundamentals—like access to electricity and roads—but also address coordination failures amongst firms. As in the classic “big push” literature, the opening of a park may induce many firms to invest knowing that returns will be high as a result of local spillovers. Developing tools that allow her to separate these two channels, she estimates that about a third of the growth impacts of India’s 4000 industrial parks has come from shifting equilibria rather than changing fundamentals. We hope this work spurs further scholarship on place-based policies in developing countries.

Imperfect competition and markups

Rodrik (1988) and Tybout (2000) argue that too much trade policy analysis is based on insights derived from models of perfect competition. The resulting advice may be inappropriate for developing countries where many markets are imperfectly competitive and antitrust is typically nonexistent.

A long-standing view is that trade liberalisations increase domestic competition and reduce markups, and pioneering work by Levinsohn (1993) and Harrison (1994) found support for this hypothesis in Turkey and Cote d’Ivoire, respectively. More recently, Edmond et al. (2015) develop—and test on Taiwanese data—a model in which the pro-competitive effects of trade both lower markups and reduce markup dispersion by exposing the previously-dominant producers to greater competition. Trade reforms also lower prices of inputs, as noted above, and De Loecker et al. (2016) examine how prices, markups and marginal costs adjusted in response to India’s dramatic reductions in input tariffs. Recovering markups from production data via first-order conditions, they estimate a median markup (across all sectors) in India of 34% of costs. While prices declined relatively more in sectors that experienced larger tariff cuts, consistent with the pro-competitive effects of trade, costs fell even further because of declines in input tariffs. As a result, markups actually increased in response to India’s trade liberalisation.

Atkin et al. (2015) take a direct approach to measuring markups in a sample of soccer ball exporters in Pakistan. They ask firms for their markups and find that high-quality balls command higher markups and that the median is low at 8.6% of cost. However, the dispersion in markups across firms is large—with the standard deviation of markups approximately equal to the median. In fact, this markup dispersion exceeds dispersion in manufacturing costs and is more strongly correlated with firm size. Their results suggest that marketing efforts play a key role in export success. The nature of relationships also matters for markups. Cajal-Grossi et al (2023) exploit novel data from Bangladeshi garment exporters that allows imported inputs to be matched to specific export orders, alongside internal plant production records, to show that gaps between prices and costs are larger for purchases made through repeated relationships rather than spot markets. The authors interpret this price premium as an incentive for supplier reliability.

These studies relate to the growing literature on market power in supply chains. The extent to which developing countries benefit from participating in global value chains depends critically on which actors hold market power. This review discusses the role of intermediaries in limiting the gains to farmers participating in agricultural trade in Section 4.6. Alviarez et al. (2023) and Atkin et al. (2024) explore the possibility of market power on both sides of trade transactions, with the latter paper using application-level data on discretionary import licenses to show that Argentinian importers are systematically less likely to hold market power in their relationships when importing from richer rather than poorer countries.

To shed further light on the relationship between trade, markups and the degree of imperfect competition, we see high value in future studies focusing on specific industries. Such a focus allows for a deeper understanding of industry costs and the appropriate shape of the production function, as well as potentially more accurate collection of cost and price data, and even the firm’s perceived markup (which is presumably the object they adjust in response to economic conditions). Faccio and Zingales (2021), Beirne and Kirchberger (2020) and Leone et al. (2021) provide nice recent examples of industry studies of competition in developing countries with the former exploring the mobile telecoms industry and the latter two the cement industry. Finally, the finding that trade affects not just levels but the dispersion of markups has implications for misallocation, a topic we focus more directly on in Section 5.

Domestic trade frictions: Costly internal trade hurts trade beyond borders

Another feature typical of developing countries is the high cost of moving goods within the country, both due to poor infrastructure and to chains of (often imperfectly competitive) middlemen. These high costs directly distort production and supply-chain decisions, reduce the ability to produce at scale, and have distributional ramifications for the gains from trade that are absent from trade models that abstract away from domestic geography, distribution and retail.

As evidence for these high costs, Atkin and Donaldson (2016) use variation in price quotes across Ethiopia and Nigeria (purged of intermediary markups) to document that the marginal costs of distance are 3-5 times higher in Sub-Saharan Africa than the U.S. Donaldson (2015) reviews the literature on the gains from market integration via improved infrastructure. However, Asher and Novosad (2020) pours some cold water on the idea that local road infrastructure is a major driver of poverty with limited impacts of the construction of feeder roads from rural villages in India on measures of livelihoods beyond facilitating the movement of workers out of agriculture. In contrast, Barnwal et al. (2024) use truck GPS records to show non trivial impacts on trucking times from the removal of tax collection checkpoints at state borders within India that drove substantial rises in household expenditures.

Coşar and Fajgelbaum (2016) explore how high internal trade costs affect the gains from trade. Export-oriented firms located by the coast to access foreign markets and draw mobile factors from the autarkic interior. The gains from (external) trade liberalisation are reduced in this model, with absolute losses to immobile factors in the interior. Fajgelbaum and Redding (2022) further show that internal trade costs can slow the process of export-induced structural development by keeping land cheap relative to labour in remote locations. In contrast, Allen and Atkin (2022) highlight that high trade costs provide a form of insurance to farmers in the sense that local prices rise when local yields are low. Thus, expansions in India’s highway system led farmers to reallocate their land to less volatile crops to mitigate the increased risk they were exposed to, particularly in locations without good access to banks (an alternative risk mitigation technology).

A substantial literature highlights the prevalence and importance of middlemen in the developing world. Ahn et al. (2011b) hypothesise that small exporters use intermediaries to save on trade costs or access more difficult markets and provide supportive evidence from Chinese firm-level data. If the trading sector is perfectly competitive, many layers of intermediaries act as a price wedge between domestic markets, raising internal trade costs. However, Atkin and Donaldson (2016) also find imperfect competition in the trading sector to be pervasive, particularly in remote locations. This combination of high trade costs and a lack of competition in trading and distribution alters the distributional impacts of trade to the detriment of remote locations, which experience smaller gains from reductions in port prices than less-remote places and whose consumers receive a smaller share of the pie vis-a-vis intermediaries. This echoes McMillan et al. (2003) who show that farmers saw little benefit to removing export restrictions in Mozambique’s cashew sector, as middlemen passed through little of the price rise (alongside urban unemployment generated by the closing of cashew processing plants). Fafchamps and Hill (2008) document low pass-through from international prices to Ugandan coffee farmers although they conjecture this comes in part from excess entry of small traders increasing search costs for traders. Bergquist and Dinerstein (2020) shows only one-fifth of an experimentally-induced cost reduction is passed through to Kenyan consumers, and experimentally-induced entry of additional traders has little benefit as the new traders quickly collude with incumbents. Finally, Dhingra and Tenreyro (2024) argue that pass-through of world prices to farmers depends on the degree of monopsony power of large agri-businesses that are becoming increasingly common in developing countries. They find that when world prices rise, Kenyan farmers selling to these large buyers see incomes rise by a third less than those selling through small traders. Zavala (2023) echoes the importance of market power among intermediaries in the context of large exporters in Ecuador’s agricultural supply chains.

 Bergquist et al. (2024) investigate a promising policy solution—digital matching platforms—to concerns that search costs and the presence of large intermediaries limit the gains from trade for small-scale farmers. Randomising the rollout of a digital clearinghouse across Ugandan subcounties, connected markets became more integrated with trade flows facilitated by the platform generating price convergence across markets. While such integration brings gains from trade, they find that the platform is primarily used by large traders who can afford the fixed costs of cross-market trade, rather than smallholder farmers that the marketplace’s designers were targeting (although market integration does benefit farmers in surplus areas who can now sell at higher prices). 

Turning to theoretical advances, Antras and Costinot (2011) show that international trade can generate absolute losses for the developing world if developed-country traders with strong bargaining positions come to dominate developing country markets. Bardhan et al. (2013) explore a setting where consumers are uncertain of product quality and so producers rely on middlemen with reputations to sell their products. Thus, middlemen obtain reputational rents, and these rents can skew the distribution of the gains from trade in favour of middlemen. In recent work, Grant and Startz (2023) show that even when intermediation is imperfectly competitive, cutting middlemen out can either help or harm consumers. If multiple layers of intermediation arise in response to economies of scale in transportation, search, or other trade costs, then longer chains involve both higher costs and more competition, and the net welfare effect of these two forces is ambiguous.

One solution to intermediary market power takes the form of programmes such as Fair Trade certification that guarantee minimum prices to producers and may help organise and provide public goods to groups of farmers. The effectiveness of such programmes is still in question, with Dragusanu et al. (2014) reviewing the literature, and for more recent contributions, see Dragusanu et al. (2022) and Macchiavello and Miquel-Florensa (2019).

The role of the final link in the distribution chain—the retail sector—has received less attention despite retail appearing to be highly inefficient and uncompetitive in developing countries. Notable exceptions are Javorcik and Li (2013) and Iacovone et al. (2015) who document that entry of foreign retailers into Romania and Mexico, respectively, induced domestic suppliers to raise productivity and improve logistics. Lagakos (2016) suggests that rather than frictions impeding the adoption of modern retail technology, the lack of cars among the poor impedes “supermarket-style” retail. Atkin et al. (2018) show substantial improvements in welfare with the entry of foreign retail into a middle-income country, Mexico. These gains are primarily driven by 30% of consumers switching their purchases to foreign stores as well as pro-competitive reductions in prices by domestic competitors. Suggestive of the lack of competition in the retail sector in developing countries, these two effects are more than twice as large as comparable estimates of Walmart’s impacts when entering US towns.[10]10. Beyond foreign entry, e-commerce may be a partial solution to high retail prices, as shown by Couture et al. (2021).  Two recent papers on Mexico, Talamas Marcos (2024) and Ramos-Menchelli and Sverdlin-Lisker (2022), analyse the retail segment that is perhaps most important for the incomes of the poor—convenience stores. In the former case, the author explores the impacts of the expansion of chain convenience stores owned by large multinationals. In the latter case, the authors pose the classic question of why are there so many small firms in developing countries with the paper exploiting the deregulation of the gasoline market to show the key role of high transport costs in providing small inefficient stores with some market power over consumers living close to them.

The idea that high internal trade costs and low incomes lead to small and segmented markets matters more broadly in developing countries. Similar to infant industry arguments, these segmented markets reduce the ability of developing country firms to exploit economies of scale that may be necessary to be internationally competitive. Bigsten et al. (2004) touch upon this point while exploring learning-by-exporting in African manufacturing and Leone et al. (2021) point to small market size as a cause of high cement prices in Africa. Goldberg and Reed (2023) formalise the idea that firms will not invest in modern increasing returns to scale technologies in countries with small markets for high quality products. In this context, either accessing wealthier export markets or domestic policies to create a large middle class may be essential to generate growth. We believe that the difficulty firms in small and poor African countries face in achieving sufficient scale deserves more attention.

In summary, there is strong evidence of large internal trade costs in the developing world coupled with imperfect pass-through due to imperfectly competitive trading and retail sectors. This should certainly make us cautious when interpreting welfare and distributional impacts of reforms from border price changes (i.e. by assuming perfect pass-through from border to consumer). However, further research is needed to establish more reasonable assumptions. At the same time, we know little about effective policy remedies for the lack of competition in the trading and distribution sectors.

Information and knowledge barriers

Recent research has documented that information frictions in developing countries may impede trade as much, or more than, textbook trade barriers such as transportation costs and tariffs. These frictions reflect the costs of gathering information from distant markets, including prices, products, trade partners, consumer preferences, and production and management techniques. While information frictions exist everywhere, they may be especially severe in trade within or across borders in developing countries due to the high costs of information technologies, interactions with other market failures, and the weakness of regulations and institutions that facilitate information disclosure and collection.

Search and matching

Price search: Firms may not know prices charged elsewhere

Costly price discovery contributes to a lack of market integration in developing countries. The introduction of new information technologies can reduce these costs and improve arbitrage. Jensen (2007) studies the expansion of mobile phone access to fishing villages in India. He finds that, as fishing boats and wholesale traders adopted phones, they were able to communicate and better match supply to demand across villages, reducing price dispersion and waste. Aker (2010) documents a similar phenomenon in Niger, where the introduction of mobile phones led to a 10–16% reduction in price dispersion across grain markets, and an even larger reduction between market pairs separated by high transport costs. Goyal (2010) finds that village internet kiosks where Indian farmers could learn about wholesale soybean prices led to reduced price dispersion and an increase in soybean cultivation.

However, interventions that attempt to harness these technologies and reduce information frictions by providing price information in agricultural settings have had mixed results, perhaps information about prices in distant markets is not actionable for small farmers who don’t engage in cross-market trade. Most studies find that providing farmers with price information has no impact on the average prices they receive for their output, but may have some limited effects on bargaining with or passthrough from traders (Fafchamps and Minten 2012, Mitra et al. 2018, Bergquist et al. 2024). A few have found effects on prices received by treated farmers, at least in the short run and for some crops (Nakasone 2014, Soldani et al. 2023). In a study of a large-scale radio programme that provided information on food prices in urban markets to farmers in Uganda, Svensson and Yanagizawa-Drott (2009) initially found that treated farmers enjoyed substantial increases in farmgate prices and revenue, but later in Svensson and Yanagizawa-Drott (2012) show that gains to treated farmers were overestimated due to and entirely offset by reductions in market prices in general equilibrium, which led to losses for those in the control group. Wiseman (2024) finds that providing traders (rather than farmers) with information about prices and trade costs in a range of markets leads them to change their sourcing decisions, increases trader profits, and reduces prices for consumers. 

While the previously mentioned studies work primarily with price data, data on flows of goods are helpful for understanding the form that price search takes and its contribution to total trade barriers. Allen (2014) uses an unusual dataset that captures intranational trade in agricultural goods between ports within the Philippines, which shows that freight costs cannot fully explain the extent to which trade flows decline with distance. This and other empirical patterns can be explained if producers must pay a fixed cost to learn about the price in another location. Structural estimates suggest that information frictions account for half of the observed spatial price dispersion. In a historical context, Steinwender (2018) analyses the effect of the transatlantic telegraph linking the United States and Great Britain on the cotton trade. The arrival of the telegraph reduced the time lag for news from one to two weeks to a single day, which decreased price gaps and price volatility, and increased trade flows and their volatility, with estimates of the efficiency gains from this improved integration equivalent to 8% of export value.

Product search: Are these products the same?

When goods are differentiated, information about the existence and characteristics of products may be as important as their price. Startz (2024) studies Nigerian traders who import differentiated products that change along with fashion and technology trends. Transaction-level survey data documents that these traders frequently pay high costs to travel to source markets when purchasing in order to search for new products and to conduct spot transactions that avoid a contract enforcement problem.  Estimates based on willingness to pay for travel suggest that these search and contracting frictions are about two thirds the size of physical and regulatory trade barriers combined in this setting. Juhasz and Steinwender (2018) show that the impact of an improvement in information technology depends on how it affects the ability to communicate about product characteristics. They study how the textile trade responded to historical expansions of the telegraph network. Trade increased the most in products for which characteristics could be easily communicated by telegraph, such as yarn, and the least for finished cotton cloth, for which it was difficult to fully describe the product.

Matching between buyers and sellers

Search and matching frictions also arise when looking for buyers or suppliers. There is a substantial literature in international trade that considers these frictions as part of the cost of entering a new market or expanding access within a market; see reviews by Bernard and Moxnes (2018) and Alessandria et al. (2021). Information frictions generate trade dynamics if search builds on existing relationships and experience (Chaney 2014, Eaton et al. 2022), or if potential partners learn about each others’ characteristics over time. The latter may be particularly interesting in developing country contexts, where quality regulation, contract enforcement, and formal financing opportunities may be less available to substitute for relationship-specific knowledge (see Section 2.2 for additional discussion).

Reductions in the cost of learning about potential trade partners can increase the number and quality of matches, therefore increasing trade. For instance, Aker et al. (2020) conduct a two-sided RCT in Tanzania in which some enterprises are listed in a phone directory that is made available to some households. Listed enterprises have increased sales, while households with access increase their search activities and purchasing outside their village. The same reasoning has motivated recent policy efforts to link firms in developing countries with international partners via export promotion platforms. For instance, Carballo et al. (2022b) study an online business-to-business platform supported by the Inter-American Development Bank for the purpose of promoting international trade, and find that listing on the platform increased firms’ exports by 16% via increased visibility to new buyers. Bergquist et al. (2024) evaluate the large-scale experimental rollout of a digital platform that connected buyers and sellers in agricultural markets in Uganda. They find that access to the platform increased trade and reduced price dispersion. Direct engagement with the platform was mostly by traders, who operated on a larger scale than farmers, but equilibrium price changes passed through into farmer revenues and led to an overall increase in welfare. 

Reductions in information frictions can also reallocate matches and shift bargaining power within existing ones. Jensen and Miller (2018) study the effect of the expansion of mobile phone access in India on boat-builders, and find that as market integration increased, buyers learned about the quality of sellers in other markets. Buyers shifted toward higher quality builders, whose market share expanded, while lower quality builders shrank or exited. Rudder (2020) investigates the impact of randomising access to a Tanzanian digital phonebook on business-to-business transactions, and finds that neither trade nor the number of matches increased, but that the intervention did affect the extent of relational contracting, suggesting that firms’ outside option had changed. This is consistent with McMillan and Woodruff (1999)’s earlier finding that learning about partners over time and the costs of locating alternative partners both influence the terms of relational contracting within a relationship.

Technology that improves information about potential trade partners may also not be neutral with respect to who has access to matches. Cheng et al. (2020) document “lexicographic biases” in international trade, in which Chinese firms whose romanised names come earlier in the English alphabet export more to countries with language proximity to English, which they attribute to listing order in catalogues or databases for homogenous goods. Bai et al. (2024) document large search frictions on the huge e-commerce platform AliExpress, and show that these can slow quality revelation and lead to misallocation of demand with respect to seller price and quality. They find that sales and visibility on the platform are mutually reinforcing, and that an experimental intervention to increase visibility reduces misallocation.

Knowledge and production

Information frictions may also affect the dissemination of knowledge about preferences or production techniques from elsewhere in the world. Atkin et al. (2017b) conduct a field experiment in Egypt, in which they obtained export orders for handmade rugs from high-income countries, and allocated these to a random sample of small-scale rug manufacturers via an intermediary. Detailed surveys show large impacts on exporting in treatment relative to control firms: profits increased 15–25%, and quality-levels rose dramatically when making identical rugs in a lab setting. Records of meetings between buyers, intermediaries and firms suggest knowledge flows drive these quality changes. In particular, firms learn about preferences of foreign buyers and how to manufacture high quality.

The effects documented in Atkin et al. (2017b) are an example of the elusive learning-by-exporting phenomenon. The survey by Wagner (2007) offers mixed evidence supporting a causal relationship between exporting and productivity. Supporters argue that this phenomenon is most relevant for developing countries that have more to learn (e.g. De Loecker 2007, Fernandes and Tang 2014).

Why learning-by-exporting occurs is a separate question.[11]11. Of course, exporting may incentivise investment in new technologies, the hiring of skilled workers, and so on, but accurately measured productivity conditions on these changes.  Atkin et al. (2017b) find suggestive evidence for the mechanism in the classic learning-by-exporting literature (e.g. Clerides et al. 1998): flows of information that are not priced. The fact that the value to the firm of this knowledge on the domestic market exceeds the intermediaries’ cost of provision suggests failures in the market for knowledge in this setting. Similar mechanisms are at play in studies that explore knowledge flows to domestic firms as a result of FDI; for example, Javorcik (2004) studies flows through vertical supply linkages and Alfaro-Ureña et al. (2022) examine firm-to-firm transaction data (see Section 4.4 for further discussion). Alternatively, exporting may lead firms to improve efficiency by cutting slack, although the question remains why they operated inside the efficiency frontier prior to exporting. Behavioural economics may offer insight into this puzzle (e.g. see Kremer et al. 2019).

A related line of work explores information frictions in the adoption of modern management practices. Bloom et al. (2013) conducted a randomised control trial among Indian textile firms to test the hypothesis that adopting modern management practices can improve productivity. Firms offered free management consultancy experienced a 17% improvement in productivity. The authors conclude that information frictions are the most plausible explanation for why poor management practices persist: many firms in their sample were either unaware of the impacts or existence of these improved management practices. As above, the absence of low-cost consulting providers is puzzling in this context and suggestive of market failures, potentially due to worries regarding blackmail, corporate espionage, or reputation issues.

Bloom et al. (2020) study the long-term impacts of their management experiment. Interestingly, treated firms had 41.6% higher export volumes and were 18.9% more likely to export relative to control firms. A related paper by Bloom et al. (2021) examines the relationship between management practices and export patterns in the US and China. They find that management practices matter more for Chinese export outcomes, particularly with regard to production efficiency and product quality. Iacovone et al. (2022) investigate the potential for scale-up of interventions to improve management practices in a study of Colombian auto parts firms, comparing the impacts of individual consulting versus a group approach. They find that the two lead to similar changes in reported management practices, but that the group approach has larger effects on firm profits and productivity, as well as costing roughly one-third as much per firm to implement, making it far more cost-effective. 

Information frictions may also prevent firms from accessing demand, due to the context- or institution-specific knowledge required to make sales or win contracts. Hjort et al. (2024) evaluate a program that trained medium-sized firms in Liberia on how to navigate complex sourcing procedures used by government or large formal firms, and bid more effectively for contracts. They find that treated firms bid on and win more contracts, and that for a subset, this leads to a higher probability of being in operation and larger employment several years later. 

Despite the accumulated evidence that information frictions inhibit trade and reduce productivity for firms in developing countries, we know very little about their nature, or why some attempts to change behaviour by providing information succeed and others fail. Understanding the costs firms incur in overcoming these frictions will be key to understanding their relationship to development. For instance, fixed costs of search are likely to interact with the firm-size distribution, learning dynamics with credit market imperfections, and so on. Much work remains to be done in understanding endogenous choices about information acquisition, conditional on the available technology and the costs and benefits of becoming better informed. It may be that some types of information are not actionable (e.g. farmers may not bother to learn about prices in markets that they can’t easily access) or that some agents simply don’t know what they don’t know (e.g. managers in small firms who are unaware of the potential for process improvements).

We know even less about what types of policy interventions may alleviate these information frictions. The main body of research on this topic has focused on changes in technology, but very little work has been done on the potential impact of institutions that facilitate information aggregation or reduce the need for it via regulation, such as credit bureaus, commodity exchanges, product quality standards, disclosure requirements, and industry associations. Understanding how institutions and market structure shape private incentives for information acquisition and disclosure is a particular promising area for policy work in developing countries (e.g. see Nyarko and Pellegrina, 2022 on commodity exchanges).

References

Abeberese, A B, P Barnwal, R Chaurey and P Mukherjee (2021), “Democracy and Firm Productivity: Evidence from Indonesia”, The Review of Economics and Statistics, 1–30.

Adao, R (2016), “Worker Heterogeneity, Wage Inequality, and International Trade: Theory and Evidence from Brazil,” Unpublished Manuscript.

Adao, R, C Arkolakis, and F Esposito (2021), “General Equilibrium Effects in Space: Theory and Measurement,” Unpublished Manuscript.

Adao, R, C Arkolakis, and F Esposito (2022), “General Equilibrium Effects in Space: Theory and Measurement,” Unpublished Manuscript.

Aguayo-Tellez, E, J Airola, C Juhn, and C Villegas-Sanchez (2014), “Did Trade Liberalization Help Women? The Case of Mexico in the 1990s,” New Analyses of Worker Well-Being (Research in Labor Economics, Vol. 38), Emerald Group Publishing Limited, Leeds, pp. 1–35.

Ahn, J, A K Khandelwal and S-J Wei (2011b), “The Role of Intermediaries in Facilitating Trade,” Journal of International Economics, 84: 73–85.

Aker, J C (2010), “Information from markets near and far: Mobile phones and agricultural markets in Niger”, American Economic Journal: Applied Economics, 2: 46–59.

Aker, J C, J E Blumenstock and B Dillon (2020), “How Important is the Yellow Pages? Experimental Evidence from Tanzania”.

Ali, N and E Verhoogen (2024), “What Do Market-Access Subsidies Do? Experimental Evidence from Tunisia,” Unpublished Manuscript.

Alkon, M (2018), “Do special economic zones induce developmental spillovers? Evidence from India’s states,” World Development, 107: 396–409.

Allcott, H, A Collard-Wexler and S D O’Connell (2016), “How Do Electricity Shortages Affect Industry? Evidence from India,” American Economic Review, 106: 587–624.

Allen, T (2014), “Information Frictions in Trade,” Econometrica, 82: 2041–2083.

Allen, T and D Atkin (2022), “Volatility and the Gains from Trade”, Econometrica, 90(5):2053–2092.

Alessandria, G, C Arkolakis and K J Ruhl (2021), “Firm dynamics and trade,” Annual Review of Economics, 13: 253–280.

Alviarez, V I, Fioretti, M, Kikkawa, K, and Morlacco, M (2023), “Two-sided market power in firm-to-firm trade,” NBER Working Paper No. 31253.

Amiti, M and J Konings (2007), “Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia,” American Economic Review, 97: 1611–1638.

Antràs, P and A Costinot (2011), “Intermediated Trade,” Quarterly Journal of Economics, 126: 1319–1374.

Artuc, E, D Lederman, and G Porto (2015), “A Mapping of Labor Mobility Costs in the Developing World,” Journal of International Economics, 95: 28–41.

Artuc, E, I Brambilla, and G Porto (2022), “Patterns of Labour Market Adjustment to Trade Shocks with Imperfect Capital Mobility,” The Economic Journal, 132: 2048–2074.

Asher, S and P Novosad (2020), “Rural Roads and Local Economic Development”, American Economic Review, 110(3): 797-823.

Atkin, D (2016), “Endogenous Skill Acquisition and Export Manufacturing in Mexico,” American Economic Review, 106: 2046–2085.

Atkin, D and D Donaldson (2016), “Who’s Getting Globalized? The Size and Implications of Intra-national Trade Costs,” NBER Working Paper No. 21439.

Atkin, D, A Chaudhry, S Chaudhry, A K Khandelwal and E Verhoogen (2015), “Markup and Cost Dispersion across Firms: Direct Evidence from Producer Surveys in Pakistan,” American Economic Review, 105: 537–544.

Atkin, D, B Faber and M Gonzalez-Navarro (2018), “Retail Globalization and Household Welfare: Evidence from Mexico,” Journal of Political Economy, 126: 1–73.

Atkin, D, J Blaum, P D Fajgelbaum, and A Ospital (2024), “Trade Barriers and Market Power: Evidence from Argentina's Discretionary Import Restrictions,” NBER Working Paper No. 32037.

Bai, J, M Chen, J Liu, and D Y Xu (2024), “Search and Information Frictions on Global E-Commerce Platforms: Evidence from AliExpress,” NBER Working Paper No. 28100.¨

Bardhan, P, D Mookherjee and M Tsumagari (2013), “Middlemen Margins and Globalization,” American Economic Journal: Microeconomics, 5: 81–119.

Barnwal, P, J I Dingel, D Iurchenko, P Krishna and E Van Leemput (2024), “Internal Trade Barriers in India”.

Bas, M (2012), “Input-Trade Liberalization and Firm Export Decisions: Evidence from Argentina,” Journal of Development Economics, 97(2): 481–493.

Bas, M and C Paunov (2021), “Disentangling Trade Reform Impacts on Firm Market and Production Decisions,” European Economic Review, 135: 103726.

Bas, M and V Strauss-Kahn (2015), “Input-Trade Liberalization, Export Prices, and Quality Upgrading,” Journal of International Economics, 95(2): 250–262.

Bau, N and A Matray (2023), “Misallocation and Capital Market Integration: Evidence from India,” Econometrica, 91: 67–106.

Beirne, K and M Kirchberger (2020), “Concrete thinking about development,” Working Paper, Oxford University.

Ben Yahmed, S and P Bombarda (2020), “Gender, Informal Employment and Trade Liberalization in Mexico,” The World Bank Economic Review, 34(2): 259–283.

Benguria, F, A Garcia-Marin, and T Schmidt-Eisenlohr (2023), “Trade Credit and Relationships,” CESifo Working Paper No. 10465.

Bergquist, L F, C McIntosh and M Startz (2024), “Search costs, intermediation, and trade: Experimental evidence from Ugandan agricultural markets”, NBER Working Paper No. 33221.

Bernard, A B and A Moxnes (2018), “Networks and Trade,” Annual Review of Economics, 10: 65–85.

Besley, T and M Ghatak (2010), “Property Rights and Economic Development,” in Handbook of Development Economics, Volume 5, ed. by D. Rodrik and M. Rosenzweig, Amsterdam: North-Holland, chap. 68, 4525–4595.

Bhagwati, J and V Ramaswami (1963), “Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy,” Journal of Political Economy, 71: 44–50.

Bigsten, A, P Collier, S Dercon, M Fafchamps, B Gauthier, J W Gunning, A Oduro, R Oostendorp, C Pattillo, M Soderbom, F Teal and A Zeufack (2004), “Do African Manufacturing Firms Learn from Exporting?” Journal of Development Studies, 40: 115–141.

Blanchard, E J and W W Olney (2017), “Globalization and Human Capital Investment: Export Composition Drives Educational Attainment,” Journal of International Economics, 106: 165–183.

Bloom, N, B Eifert, A Mahajan, D McKenzie and J Roberts (2013), “Does Management Matter? Evidence from India,” Quarterly Journal of Economics, 128: 1–51.

Bloom, N, A Mahajan, D McKenzie and J Roberts (2020), “Do Management Interventions Last? Evidence from India,” American Economic Journal: Applied Economics.

Bloom, N, K Manova, J Van Reenen, S T Sun and Z Yu (2021) “Trade and Management”, Review of Economics and Statistics, 103(1):443-460.

Blum, S B, S Claro, K Dasgupta, I J Horstmann, and M A Rangel (2023), “Wholesalers in International Production Networks,” Working Paper.

Boehm, J and E Oberfield (2020), “Misallocation in the Market for Inputs: Enforcement and the Organization of Production,” Quarterly Journal of Economics, 135: 2007–2058.

Boehm, J, S Dhingra, and J Morrow (2022), “The Comparative Advantage of Firms,” Journal of Political Economy, 130(12): 3025–3100.

Brooks, W and A Dovis (2020), “Credit Market Frictions and Trade Liberalizations,” Journal of Monetary Economics, 111.

Brussevich, M (2018), “Does Trade Liberalization Narrow the Gender Wage Gap? The Role of Sectoral Mobility,” European Economic Review, 109: 305–333.

Cajal-Grossi, J, R Macchiavello and G Noguera (2023), “Buyers’ Sourcing Strategies and Suppliers’ Markups in Bangladeshi Garments”, The Quarterly Journal of Economics, 138(4): 2391-2450.

Carballo, J, M Rodriguez Chatruc, C Salas Santa and C Volpe Martincus (2022b), “Online business platforms and international trade,” Journal of International Economics, 137, 103599.

Chaney, T (2014), “The network structure of international trade,” American Economic Review, 104: 3600–3634.

Chari, A, E Liu, S Wang, and Y Wang (2021), “Property Rights, Land Misallocation, and Agricultural Efficiency in China”, Review of Economic Studies, 88: 1831-1862.

Cheng, H, C Hu and B G Li (2020), “Lexicographic biases in international trade,” Journal of International Economics, 126: 103346.

Cheng, W and A Potlogea (2018), “Trade Liberalization and Economic Development: Evidence from China’s WTO Accession,” Unpublished Manuscript.

Chong, A and D Velásquez (2024), “Does Trade Liberalization Foster Intimate Partner Violence?” Economic Development and Cultural Change, 72(2).

Chor, D and X Ma (2021), “Contracting Institutions and Global Sourcing,” Journal of International Economics, 130: 103444.

Coşar, A K and P D Fajgelbaum (2016), “Internal Geography, International Trade, and Regional Specialization,” American Economic Journal: Microeconomics, 8: 24–56.

Coşar, A K, N Guner, and J Tybout (2016), “Firm Dynamics, Job Turnover, and Wage Distributions in an Open Economy,” The American Economic Review, 106: 625–663.

Costa, F, J Garred, and J P Pessoa (2016), “Winners and Losers from a Commodities-for-Manufactures Trade Boom,” Journal of International Economics, 102: 50–69.

Couture, V, B Faber, Y Gu, and L Liu (2021), “Connecting the Countryside via E-Commerce: Evidence from China,” American Economic Review: Insights, 3: 35–50.

Das, S, M J Roberts, and J R Tybout (2007), “Market Entry Costs, Producer Heterogeneity, and Export Dynamics,” Econometrica, 75: 837–873.

De Loecker, J (2007), “Do Exports Generate Higher Productivity? Evidence from Slovenia,” Journal of International Economics, 73: 69–98.

De Loecker, J, P K Goldberg, A K Khandelwal, and N Pavcnik (2016), “Prices, Markups, and Trade Reform,” Econometrica, 84: 445–510.

Dell, M, B Feigenberg, and K Teshima (2019), “The Violent Consequences of Trade-Induced Worker Displacement in Mexico,” American Economic Review: Insights, 1: 43–58.

Demir, B, B Javorcik, T K Michalski, and E Ors (2024), “Financial Constraints and Propagation of Shocks in Production Networks,” The Review of Economics and Statistics, 106(2): 437–454.

Dhingra, S and S Tenreyro (2024), “The Rise of Agribusinesses and its Distributional Consequences,” LSE.
Dix-Carneiro, R (2014), “Trade Liberalization and Labor Market Dynamics,” Econometrica, 82: 825–885.

Dix-Carneiro, R and B K Kovak (2017), “Trade Liberalization and Regional Dynamics,” American Economic Review, 107: 2908–2946.

Dix-Carneiro, R and B K Kovak (2019), “Margins of Labor Market Adjustment to Trade,” Journal of International Economics, 117: 125–142.

Dix-Carneiro, R and B K Kovak (2023), “Globalization and Inequality in Latin America,” Oxford Open Economics, Forthcoming.

Dix-Carneiro, R, R R Soares, and G Ulyssea (2018), “Economic Shocks and Crime: Evidence from the Brazilian Trade Liberalization,” American Economic Journal: Applied Economics, 10: 158–195.

Djankov, S, C McLiesh, and A Shleifer (2007), “Private Credit in 129 Countries,” Journal of Financial Economics, 12: 77–99.

Donaldson, D (2015), “The Gains from Market Integration,” Annual Review of Economics, 7: 619–647.

Dragusanu, R, D Giovannucci and N Nunn (2014), “The Economics of Fair Trade,” Journal of Economic Perspectives, 28: 217–236.

Dragusanu, R, E Montero and N. Nunn (2022), “The Effects of Fair Trade Certification: Evidence from Coffee Producers in Costa Rica,” Journal of the European Economic Association.

Duranton, G and A J Venables (2019), “Place-Based Policies for Development,” NBER Working Paper No. 24562.

Ederington, J, J Minier, and K R Troske (2024), “Trade and Labor Market Segregation in Colombia,” Review of International Economics, 32(4): 1645–1670.

Edmond, C, V Midrigan and D Y Xu (2015), “Competition, Markups, and the Gains from International Trade,” American Economic Review, 105: 3183–3221.

Erten, B and J Leight (2021), “Exporting Out of Agriculture: The Impact of WTO Accession on Structural Transformation in China,” The Review of Economics and Statistics, 103: 364–380.

Erten, B, J Leight, and F Tregenna (2019), “Trade Liberalization and Local Labor Market Adjustment in South Africa,” Journal of International Economics, 118: 448–467.

Faccio, M and L Zingales (2021), “Political Determinants of Competition in the Mobile Telecommunication Industry,” The Review of Financial Studies, 35: 1983–2018.

Fafchamps, M and R V Hill (2008), “Price Transmission and Trader Entry in Domestic Commodity Markets,” Economic Development and Cultural Change, 56: 729–766.

Fajgelbaum, P and S J Redding (2022), “Trade, Structural Transformation, and Development: Evidence from Argentina 1869 - 1914,” Journal of Political Economy, 130: 1249–1318.

Fan, H, Y A Li, and S R Yeaple (2015), “Trade Liberalization, Quality, and Export Prices,” The Review of Economics and Statistics, 97(5).

Fernandes, A P and H Tang (2014), “Learning to Export from Neighbors,” Journal of International Economics, 94: 67–84.

Felix, M (2021), “Trade, Labor Market Concentration, and Wages,” MIT.

Fieler, A C, M Eslava, and D Y Xu (2018), “Trade, Quality Upgrading, and Input Linkages: Theory and Evidence from Colombia,” American Economic Review, 108(1): 109–146.

Finlay, R (2024), “Exporters, Credit Constraints, and Misallocation,” MIT Working Paper.

Foley, C and K Manova (2015), “International Trade, Multinational Activity, and Corporate Finance,” Annual Review of Economics, 7: 119–146.

Gaddis, I and J Pieters (2017), “The Gendered Labor Market Impacts of Trade Liberalization: Evidence from Brazil,” Journal of Human Resources, 52(2): 457–490.

Gallé, J, D Overbeck, N Riedel, and T Seidel (2024), “Place-based policies, structural change and female labor: Evidence from India’s Special Economic Zones,” Journal of Public Economics, 240: 105259.

Garg, T (2025), “Can Industrial Policy Overcome Coordination Failures? Theory and Evidence”, Working Paper.

Goldberg, P K and N Pavcnik (2007), “Distributional Effects of Globalization in Developing Countries,” Journal of Economic Literature, 45: 39–82.

Goldberg, P K and N Pavcnik (2016), “The Effects of Trade Policy,” in Handbook of Commercial Policy, ed. by K Bagwell and R W Staiger, Vol. 1, Part A, Elsevier/North-Holland, 161–206.

Goldberg, P K and T Reed (2023), “Presidential Address: Demand-Side Constraints in Development. The Role of Market Size, Trade, and (In)Equality”, Econometrica, 91:1915–1950.

Goldberg, P, A Khandelwal, N Pavcnik, and P Topalova (2009), “Trade Liberalization and New Imported Inputs,” American Economic Review: Papers and Proceedings, 99: 494–500.

Goldberg, P, A Khandelwal, N Pavcnik, and P Topalova (2010), “Imported Intermediate Inputs and Domestic Product Growth: Evidence from India,” Quarterly Journal of Economics, 125(4): 1727–1767.

Gopinath, G (2015), “The International Price System,” NBER Working Paper No. 21646.

Gopinath, G and B Neiman (2014), “Trade Adjustment and Productivity in Large Crises,” American Economic Review, 104: 793–831.

Gopinath, G, O Itskhoki, and R Rigobon (2010), “Currency Choice and Exchange Rate Pass-Through,” American Economic Review, 100: 304–336.

Goyal, A (2010), “Information, direct access to farmers, and rural market performance in central India,” American Economic Journal: Applied Economics, 2: 22–45.

Grant, M (2020), “Why special economic zones? Using trade policy to discriminate across importers,” American Economic Review, 110: 1540–71.

Grant, M and M Startz (2021), “Cutting out the middleman: The structure of chains of intermediation,” NBER Working Paper 30109.

Halpern, L, M Koren, and A Szeidl (2015), “Imported Inputs and Productivity,” American Economic Review, 105: 3360–3703.

Harrison, A (1994) “Productivity, Imperfect Competition and Trade Reform: Theory and Evidence,” Journal of International Economics, 36: 53–73.

Heath, R, A Bernhardt, G Borker, A Fitzpatrick, A Keats, M McKelway, A Menzel, T Molina, and G Sharma (2024), “Female Labour Force Participation,” VoxDevLit, 11(1), February 2024.

Helpman, E, O Itskhoki, and S J Redding (2010), “Inequality and Unemployment in a Global Economy,” Econometrica, 78: 1239–1283.

Helpman, E, O Itskhoki, M A Muendler, and S J Redding (2017), “Trade and Inequality: From Theory to Estimation,” The Review of Economic Studies, 84: 357–405.

Hjort, J, G de Rochambeau, V Iyer and F Ao (2024), “Informational Barriers to Market Access: Experimental Evidence from Liberian Firms”, NBER Working Paper No. 27662.

Huneeus, F (2019), “Production Network Dynamics and the Propagation of Shocks,” Yale University Working Paper.

Hyman, B (2021), “Can Displaced Labor Be Retrained? Evidence from Quasi-Random Assignment to Trade Adjustment Assistance,” NY Fed.

Iacovone, L, B Javorcik, W Keller and J Tybout (2015) “Supplier Responses to Walmart’s Invasion in Mexico,” Journal of International Economics, 95: 1–15.

Iacovone, L, W Maloney, and D McKenzie (2022), “Improving Management with Individual and Group-Based Consulting: Results from a Randomized Experiment in Colombia”, The Review of Economic Studies, 89(1): 346–371.

Irwin, D A (2019), “Does Trade Reform Promote Economic Growth? A Review of Recent Evidence,” NBER Working Paper No. 25927.

Javorcik, B S and Y Li (2013), “Do the Biggest Aisles Serve a Brighter Future? Global Retail Chains and their Implications for Romania,” Journal of International Economics, 90: 348–363.

Jensen, R (2007), “The digital provide: Information (technology), market performance, and welfare in the South Indian fisheries sector,” The Quarterly Journal of Economics, 122:879–924.

Juhász, R and C Steinwender (2018), “Spinning the Web: The Impact of ICT on Trade in Intermediates and Technology Diffusion,” NBER Working Paper 24590.

Juhn, C, G Ujhelyi, and C Villegas-Sanchez (2014), “Men, Women, and Machines: How Trade Impacts Gender Inequality,” Journal of Development Economics, 106: 179–193.

Khandelwal, A K and M Teachout (2016), “Special Economic Zones for Myanmar,” IGC Working Paper Series.

Kovak, B K (2013), “Regional Effects of Trade Reform: What Is the Correct Measure of Liberalization?” American Economic Review, 103: 1960–1976.

Kremer, M, G Rao and F Schilbach (2019) “Behavioral Development Economics,” in Handbook of Behavioral Economics, Volume 2, ed. by B. D. Bernheim, S. DellaVigna, and D. Laibson, Amsterdam: Elsevier, chap. 5, 345–458.

Krishna, P, A A Levchenko, L Ma, and W F Maloney (2023), “Growth and Risk: A View from International Trade,” Journal of International Economics, 142: 103755.

Krueger, A O (1984), “Trade Policies in Developing Countries,” in Handbook of International Economics, Volume 1, ed. by R W Jones and P B Kenen, Amsterdam: North-Holland.

Kugler, M and E Verhoogen (2009), “Plants and Imported Inputs: New Facts and an Interpretation,” American Economic Review Papers & Proceedings, 99(2): 501–507.

Kugler, M and E Verhoogen (2012), “Prices, Plant Size, and Product Quality,” Review of Economic Studies, 79: 307–339.

Lagakos, D (2016) “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, 124: 579–620.

Lanteri, A, P Medina, and E Tan (2023), “Capital-Reallocation Frictions and Trade Shocks,” American Economic Journal: Macroeconomics, 15(2): 190–228.

Leibovici, F (2021), “Financial Development and International Trade,” Journal of Political Economy, 129: 3405–3446.

Leone, F, R Macchiavello and T Reed (2021), “The Falling Price of Cement in Africa,” CEPR Discussion Paper 16253.

Levinsohn, J (1993), “Testing the Imports-as-Market-Discipline Hypothesis,” Journal of International Economics, 35: 1–22.

Liu, E (2019), “Industrial Policies in Production Networks,” Quarterly Journal of Economics, 134: 1883–1948.

Macchiavello, R and J Miquel-Florensa (2019), “Improving Export Quality: The Case of the Sustainable Quality Program in Colombia,” Toulouse School of Economics.

Manova, K (2013), “Credit Constraints, Heterogeneous Firms, and International Trade,” Review of Economic Studies, 80: 711–744.

Manova, K and Z Zhang (2012), “Export Prices Across Firms and Destinations,” Quarterly Journal of Economics, 127: 379–436.

Mansour, H, P Medina, and A Velásquez (2022), “Import Competition and Gender Differences in Labor Reallocation,” Labour Economics, 76: 102149.

McCaig, B (2011), “Exporting Out of Poverty: Provincial Poverty in Vietnam and US Market Access,” Journal of International Economics, 85: 102–113.

McCaig, B and M S McMillan (2019), “Trade Liberalisation and Labour Market Adjustment in Botswana,” Journal of African Economies, 29: 236–270.

McMillan, J and C Woodruff (1999), “Interfirm Relationships and Informal Credit in Vietnam,” Quarterly Journal of Economics, 114: 1285–1320.

McMillan, M, K Horn Welch, D Rodrik, I Elbadawi and S O’Connell (2003), “When Economic Reform Goes Wrong: Cashew in Mozambique [with Comments and Discussion],” Brookings Trade Forum, 97–165.

Medina, P (2022), “Import Competition, Quality Upgrading, and Exporting: Evidence from the Peruvian Apparel Industry,” The Review of Economics and Statistics, 1–45.

Messer, T (2022), “Foreign Currency as a Barrier to International Trade: Evidence from Brazil,” Working Paper.

Mitra, S, D Mookherjee, M Torero and S Visaria (2018), “Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers”, Review of Economics and Statistics, 100(1): 1–13.

Monteiro, J and R Rocha (2017), “Drug Battles and School Achievement: Evidence from Rio de Janeiro’s Favelas,” The Review of Economics and Statistics, 99: 213–228.

Morlacco, M (2019), “Market Power in Input Markets: Theory and Evidence from French Manufacturing,” Working Paper.

Nyarko, Y and H S Pellegrina (2022), “From bilateral trade to centralized markets: A search model for commodity exchanges in Africa,” Journal of Development Economics, 157: 102867.

Oster, E and B M Steinberg (2013), “Do IT Service Centers Promote School Enrollment? Evidence from India,” Journal of Development Economics, 104: 123–135.

Paravisini, D, V Rappoport, P Schnabl, and D Wolfenzon (2015), “Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data,” Review of Economic Studies, 82: 333–359.

Paravisini, D, V Rappoport, and P Schnabl (2023), “Specialization in Bank Lending: Evidence from Exporting Firms,” Working Paper.

Ponczek, V and G Ulyssea (2022), “Enforcement of Labour Regulation and the Labour Market Effects of Trade: Evidence from Brazil,” The Economic Journal, 132: 361–390.

Ramos-Menchelli, D and D Sverdlin-Lisker (2022). “Fragmented Markets and the Proliferation of Small Firms: Evidence from Mom-and-Pop Shops in Mexico,” Technical report.

Rodrik, D (1988), “Imperfect Competition, Scale Economies, and Trade Policy in Developing Countries,” in Trade Policy Issues and Empirical Analysis, Chicago and London: University of Chicago Press.

Rudder, J (2020), “Search Costs and Relational Contracting: The Impact of a Digital Phonebook on Small Business Supply Chains”.

Ruggieri, A (2021), “Trade and Labor Market Institutions: A Tale of Two Liberalizations,” University of Nottingham.

Ryan, N (2021), “The Competitive Effects of Transmission Infrastructure in the Indian Electricity Market”, American Economic Journal: Microeconomics, 13, 202-242.

Sharma, G (2023), “Monopsony and Gender,” Working Paper.

Startz, M (2024), “The Value of Face-to-Face: Search and Contracting Problems in Nigerian Trade,” Working Paper.

Steinwender, C (2018), “Real Effects of Information Frictions: When the States and the Kingdom became United,” American Economic Review, 108: 657–696.

Svensson, J and D Yanagizawa-Drott (2009), “Getting Prices Right: The Impact of the Market Information System in Uganda,” Journal of the European Economic Association, 7(2-3): 435-445.

Svensson, J and D Yanagizawa-Drott (2012), “Tuning in the Market Signal: Estimating Impact of Access to Market Prices in Partial vs. General Equilibrium,” Working Paper.

Talamas Marcos, M Á (2024), “Surviving Competition: Neighbourhood Shops versus Convenience Chains”, Review of Economic Studies.

Tian, Y (2022), “International Trade Liberalization and Domestic Institutional Reform: Effects of WTO Accession on Chinese Internal Migration Policy,” The Review of Economics and Statistics, 1–45.

Topalova, P (2010), “Factor Immobility and Regional Impacts of Trade Liberalization: Evidence on Poverty from India,” American Economic Journal: Applied Economics, 2: 1–41.

Topalova, P and A Khandelwal (2011), “Trade Liberalization and Firm Productivity: The Case of India,” Review of Economics and Statistics, 93: 995–1009.

Tybout, J (2000) “Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?” Journal of Economic Literature, 38: 11–44.

Wagner, J (2007), “Exports and Productivity: A Survey of the Evidence from Firm-level Data,” The World Economy, 30: 60–82.

Wang, J (2013), “The Economic Impact of Special Economic Zones: Evidence from Chinese Municipalities,” Journal of Development Economics, 101: 133–147.

Wiseman, E (2023), “"Border Trade and Information Frictions: Evidence from Informal Traders in Kenya", Working Paper.

Zavala, L (2023), “Unfair trade? Monopsony power in agricultural value chains,” The World Bank.