Search Externalities in Firm-to-Firm Trade

John Spray

No 2021/091, IMF Working Papers from International Monetary Fund

Abstract: I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I document empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version of the model and show that, in Uganda, a 25% reduction in trade costs led to a 3.7% increase in consumer welfare, 12% of which was due to search externalities.

Keywords: Firm-to-Firm Trade; VAT Data; Search-and-Matching; Importing; transport cost reduction; buyer-supplier search; search externality; welfare gains from trade; consumer welfare; Imports; Labor market frictions; Search models; Value-added tax; East Africa; Global (search for similar items in EconPapers)
Pages: 80
Date: 2021-03-19
New Economics Papers: this item is included in nep-com, nep-dge and nep-int
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Citations: View citations in EconPapers (2)

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