Community Networks and Trade

Böken, Johannes, Lucie Gadenne, Tushar Nandi and Marta Santamaria
Additional contact information
Böken, Johannes: University of Warwick
Tushar Nandi: IISER Kolkata
Marta Santamaria: University of Warwick

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: Do community networks shape firm-to-firm trade in emerging economies? We study the role of communities in facilitating firm-to-firm trade and firm outcomes using data on firm-to-firm transactions and firm owners’ community (castes) affiliations for the universe of medium- and large- sized firms in West Bengal, India. We find that firms are substantially more likely to trade, and trade more, with firms from their own caste. Studying the mechanisms underlying this effect, we find evidence consistent both with castes alleviating trade frictions and taste-based discrimination by firms against those outside their community. Guided by these stylized facts, we develop a model of firm to-firm trade in which communities affect pair productivity and matching costs and estimate the model using our reduced-form estimates. A counterfactual extending the positive effects of castes on trade to all potential supplier-client pairs would increase the number of network links by 60% and increase average firm-to-firm sales by 20%.

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Date: 2022
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https://warwick.ac.uk/fac/soc/economics/research/centres/cage/wp649.2022.pdf

Related works:
Working Paper: Community Networks and Trade (2023)
Working Paper: Community Networks and Trade (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:649

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