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Structural embeddedness, uncertainty, and international trade

We examine the impact of structural embeddedness, operationalized as a third-party effect, on bilateral trade of two goods (apparel and grain) with different levels of product differentiation and transactional uncertainty. Specifically, we test two competing hypotheses for how trade ties to third parties affect trade in a dyad: the balance hypothesis – common third-party contact(s) mediate information flows between two otherwise disconnected actors, thereby encouraging direct dyadic interactions between them and the structural hole hypothesis – such contact inhibits dyadic trade. Our longitudinal analyses of international trade data show that the balance hypothesis is supported in apparel trade (a differentiated good), whereas the structural hole hypothesis tends to be supported in grain trade (a homogeneous good). Implications of the findings are discussed.