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Pecking order and core‐periphery in international trade

Glenn Magerman (), Karolien De Bruyne and Jan Van Hove

Review of International Economics, 2020, vol. 28, issue 4, 1113-1141

Abstract: This paper analyzes the impact of market size and trade costs on bilateral trade flows. A multi‐country trade model with firm‐level heterogeneity in productivities and countries’ market potential provides a simple micro foundation for the link between these variables. In the model, market size and trade costs jointly determine a country‐specific pecking order of exporters serving their destination countries. In a counterfactual setting where bilateral trade costs are homogeneous across country pairs, market size predicts a common ranking of exporters among destination countries. This leads to a unique core‐periphery structure of the world trade network. With heterogeneous trade costs, we illustrate the impact of market size and trade costs on bilateral trade flows and its margins in a simple gravity‐like setting. Using an instrumental variables approach, we find that both market size and trade costs (measured through the network position of countries) have a significant impact on bilateral exports: countries in the core bilaterally trade more with other countries in the core than with peripheral countries, conditional on typical observables.

Date: 2020
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https://doi.org/10.1111/roie.12483

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Working Paper: Pecking Order and Core-Periphery in International Trade (2019) Downloads
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