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
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.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:reviec:v:28:y:2020:i:4:p:1113-1141
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