MIDDLEMEN MARGINS AND GLOBALIZATION

We provide a competitive theory of middlemen or entrepreneurs who develop brand-name reputations necessary to overcome product quality moral hazard problems, embedded in a Heckscher-Ohlin model of North-South trade. Agents with heterogeneous entrepreneurial abil- ities sort into different sectors and occupations, with endogenous inter- sectoral mobility. In some contexts competitive equilibrium is charac- terized by restricted inter-sectoral mobility; benets of trade liberal- ization in the South accrue disproportionately to middlemen, North- South factor price differences grow, and offshoring reduces inequality in the South. In other contexts there is enough mobility; classical Stolper-Samuelson and factor price equalization results hold.