NBER WORKING PAPER SERIES

ENTREPRENEURSHIP IN INTERNATIONAL TRADE

James E. Rauch
Joel Watson

Working Paper 8708

http://www.nber.org/papers/w8708

NATIONAL BUREAU OF ECONOMIC RESEARCH

1050 Massachusetts Avenue
Cambridge, MA 02138
January 2002

This paper has benefitted from discussions with Joel Sobel and comments from participants in seminars at
UC Irvine, UCSD, and the NBER International Trade and Organizations and International Trade and
Investment Program Meetings. We thank Max Auffhammer for outstanding research assistance and Hugh
Constant and Lynn Hijar of the San Diego World Trade Center for help with interviews and a pilot survey
of international trade intermediaries. Financial support was provided by NSF grant #SES-0001832 (Rauch)
and #SES-0095207 (Watson). The views expressed herein are those of the authors and not necessarily those
of the National Bureau of Economic Research.

2002 by James E. Rauch and Joel Watson. All rights reserved. Short sections of text, not to exceed two
paragraphs, may be quoted without explicit permission provided that full credit, including notice, is given
to the source.
Entrepreneurship in International Trade
James E. Rauch and Joel Watson
NBER Working Paper No. 8708
January 2002
JEL No. F20, J41

ABSTRACT

Motivated by evidence on the importance of incomplete information and networks in

international trade, we investigate the supply of "network intermediation." We hypothesize that the
agents who become international trade intermediaries first accumulate networks of foreign contacts while
working as employees in production or sales, then become entrepreneurs who sell access to and use of
the networks they accumulated. We report supportive results regarding this hypothesis from a pilot
survey of international trade intermediaries. We then build a simple general-equilibrium model of this
type of entrepreneurship, and use it for comparative statics and welfare analysis. One welfare conclusion
is that intermediaries may have inadequate incentives to maintain or expand their networks, suggesting
a rationale for the policies followed by some countries to encourage large-scale trading companies that
imitate the Japanese sogo shosha.

James E. Rauch Joel Watson

Department of Economics Department of Economics
UCSD UCSD
La Jolla, CA 92093-0508 La Jolla, CA 92093-0508
and NBER jwatson@weber.ucsd.edu
jrauch@weber.ucsd.edu
 

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Miller, Matthew. 1997. "The Asian Connection," San Diego Union-Tribune, June 17, pp. C1,
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