Unlocking Trade Secrets: How Multistage Production Redefines Global Commerce
The article explores why countries tend to trade more with themselves than with others. By using a model that considers how production changes with trade costs, the researchers found that this multistage production model can better explain why this "home bias" in trade exists. The model was able to explain a significant portion of the trade patterns between Canada and the US, showing that the nature of production plays a key role in international trade.