Wholesalers and other intermediaries play a major role in trade. In fact, final goods may pass along a whole chain of intermediaries on their way to consumers. Such chains are particularly visible in developing countries, where small-scale traders play a very active economic role. However, very little is known, either theoretically or empirically, about how or why these distribution chains form and what the implications for consumers might be. In this project, Grant, Grossman and Startz will collect, analyse, and make available to other researchers data that traces the distribution of manufactured consumer goods in Nigeria. This data will enable them to describe the routes that goods take on their way to consumers, and to characterise the transactions along the way, including prices, markups, and trade logistics. The objectives are to understand the determinants of the structure of distribution chains, and to quantify the implications for consumers living in different places within a country.
Using the data they collect, the researchers will approach the analysis of distribution chains in two ways. First, they will use the cross- and within-country trade flows documented in the new data to estimate a general equilibrium model of trade and chain formation that they have built in work currently in progress. This model relates fundamentals of trade costs and local consumer demand in many locations to the equilibrium routing of goods, and allows them to quantify the welfare implications of changes in trade barriers or international prices for consumers living in different places within Nigeria. Second, the researchers will use the transaction- and trader-specific aspects of the new data to take a more partial equilibrium approach to understanding the determinants of firm-to-firm relationships. They will examine how contract enforcement and information frictions drive both buyer-seller matching and choices about trade and payment logistics conditional on that matching. They will focus on the role of trader ethnicity and language, which are particularly salient in cross-regional trade in Nigeria.
There is a longstanding interest among both policymakers and social scientists in understanding how trade barriers both across and within countries affect consumer welfare and in understanding the sources of price gaps between producers and consumers. However, neither literature has considered why there might be multiple links between producers and consumers, and how the structure of intermediation itself might affect the price and availability of products for consumers under different circumstances. Furthermore, current empirical understanding of intermediaries is hampered by data limitations - most firm data documents transactions at a single link, e.g. from exporter to importer when crossing international borders - but does not follow goods across multiple transaction points. In this project, the researchers will collect data that fills this gap.
