International Trade
Description
Economists believe that there is substantial “missing trade” due to trade barriers, such as tariffs and transport costs, that constrain the global activities of firms. Professor Steinwender goes a step farther by studying indirect trade barriers, notably information frictions, that influence firms’ exporting behavior. To uncover causal empirical evidence, she turns to the establishment of the transatlantic telegraph connection in 1866—a sudden and unexpected one-time event that reduced the time to send information across the Atlantic from about ten days to one. By analyzing daily prices for cotton, she shows that these exports responded strongly to information about foreign demand, and that average trade flows increased and became more volatile. In doing so, Professor Steinwender provides a novel explanation of the trade-promoting and welfare benefits of information technology: trade becomes more efficient when firms are able to forecast demand conditions at the time when their shipments will arrive in international ports.