Frictions and Adjustments in Firm-to-Firm Trade

Francois Fontaine, Julien Martin and Isabelle Mejean
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Isabelle Mejean: Sciences Po

No 23-03, Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management

Abstract: We build a dynamic Ricardian model of trade with search frictions.The model generates an endogenous network of firm-to-firm trade relationships and price bargaining within and across relationships. Following a foreign shock, firms sourcing inputs from abroad have three options: absorb the shock, renegotiate with their current supplier or switch to a supplier in another country. The size of these adjustment margins depends on the interplay between Ricardian comparative advantages, search frictions and firms' individual characteristics. We exploit French firm-to-firm trade data to estimate the model structurally and quantify the relative importance of these adjustment margins at sector-country level.

Pages: 62 pages
Date: 2023-05, Revised 2023-05
New Economics Papers: this item is included in nep-bec, nep-ger, nep-int and nep-net
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Working Paper: Frictions and adjustments in firm-to-firm trade (2023)
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