Community Networks and Trade

Johannes Boken, Lucie Gadenne, Tushar Nandi and Marta Santamaria

No 17787, CEPR Discussion Papers from Centre for Economic Policy Research

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%.

Keywords: Production networks; Caste; Trade (search for similar items in EconPapers)
Date: 2023-01
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Working Paper: Community Networks and Trade (2022)
Working Paper: Community Networks and Trade (2022)
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