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Frictions and Adjustments in Firm-to-Firm Trade

Author

Listed:
  • Francois Fontaine

    (Paris School of Economics)

  • Julien Martin

    (University of Quebec in Montreal)

  • Isabelle Mejean

    (Sciences Po)

Abstract

We build a dynamic Ricardian model of trade with search frictions.The model generates an endogenous network of firm-to-firm trade relationships and price bargaining within and across relationships. Following a foreign shock, firms sourcing inputs from abroad have three options: absorb the shock, renegotiate with their current supplier or switch to a supplier in another country. The size of these adjustment margins depends on the interplay between Ricardian comparative advantages, search frictions and firms’ individual characteristics. We exploit French firm-to-firm trade data to estimate the model structurally and quantify the relative importance of these adjustment margins at sector-country level.

Suggested Citation

  • Francois Fontaine & Julien Martin & Isabelle Mejean, 2023. "Frictions and Adjustments in Firm-to-Firm Trade," Working Papers 23-03, Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management, revised May 2023.
    • Handle: RePEc:bbh:wpaper:23-03
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    References listed on IDEAS

    as
    1. Fontagné, Lionel & Martin, Philippe & Orefice, Gianluca, 2018. "The international elasticity puzzle is worse than you think," Journal of International Economics, Elsevier, vol. 115(C), pages 115-129.
    2. Jesper Bagger & Fran?ois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," American Economic Review, American Economic Association, vol. 104(6), pages 1551-1596, June.
    3. Raphael Auer & Ariel Burstein & Sarah M. Lein, 2021. "Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation," American Economic Review, American Economic Association, vol. 111(2), pages 652-686, February.
    4. repec:hal:spmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
    5. Jesper Bagger & Francois Fontaine & Jean-Marc Robin, 2014. "Tenure, experience, human capital and wages: a tractable equilibrium search model of wage dynamics," CeMMAP working papers 12/14, Institute for Fiscal Studies.
    6. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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