Distribution Costs and International Trade : A Ricardian Model

This paper studies the role of the distribution sector in determining a country's pattern and terms of trade. The effect of an improvement in distribution technology is analyzed using a Ricardian trade model with an endogenous distribution sector. The results are found to depend on the magnitude of distribution costs relative to manufacturing costs and the preference for distribution services in the trading countries. This has important implications for the Structural Impediments Initiative, which maintains that a more efficient distribution sector in Japan would benefit both the USA and Japan