Trade Frictions and Micro-Price Behaviors: Historical Applications from the United States
Harrison, James Maxwell
Surprisingly little is known about the types of frictions that impede trade. Economists typically focus on freight costs and tariffs as comprising the bulk of trade frictions; however, recent reviews of the literature have demonstrated these frictions do not adequately explain observed patterns of trade (Anderson and van Wincoop 2004, Head and Mayer 2013). This dissertation examines how traditionally under-analyzed trade frictions shape price and export behaviors. In the first chapter, I build an arbitrage model to show freight costs, information lags, and storage costs uniquely impact cross-city price behaviors at the trend, cycle, and seasonal frequencies, respectively. In the second chapter, I empirically estimate the impact of information frictions by exploiting the spread of the telegraph across the United States as an historical experiment that exogenously decreased news lags across markets. In the third chapter, I explore how the deflation of the Great Depression worsened Smoot-Hawley tariffs that were legislated in nominal terms. In all of these chapters, my data consist of price and trade volumes for highly disaggregated goods, and I focus on historical settings because they provide substantial variation in the trade frictions of interest.