Distance between buyers and sellers is a drag on business for well-known reasons: transporting goods is costly, and tariffs and other regulatory burdens are often imposed when crossing national borders. Information problems may also arise when potential trade partners are in distant locations, but the effect this has on trade is not well understood.
In this project, Grossman and Startz collect transaction-level panel data on purchases by approximately 1,500 traders in Lagos, with the novel feature of connecting transaction outcomes (e.g. prices) to trade processes (e.g. traveling abroad to facilitate the purchase).
They find that most market associations do not provide trade-promoting services or information, and that in the absence of reliable information about suppliers, traders frequently travel to source countries in order to ensure that suppliers follow through on business agreements and to find out what products are available.