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Frictions and adjustments in firm-to-firm trade

Author

Listed:
  • Martin, Julien
  • Fontaine, François
  • Mejean, Isabelle

Abstract

We study bilateral trade adjustments in a dynamic Ricardian model of trade with search frictions. The model generates an endogenous network of firm-to-firm trade relationships that displays price bargaining within and across firm-to-firm 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 relative importance of these adjustment margins depends on the interplay between Ricardian comparative advantages, search frictions and firms' individual characteristics, including the history of the relationship. We exploit French firm-to-firm trade data to estimate the model structurally and quantify the relative importance of these adjustment margins in 26 sectors and 14 EU countries.

Suggested Citation

  • Martin, Julien & Fontaine, François & Mejean, Isabelle, 2023. "Frictions and adjustments in firm-to-firm trade," CEPR Discussion Papers 18110, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18110
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. repec:hal:spmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
    6. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
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    More about this item

    Keywords

    Firm-to-firm trade; Search frictions; Pass-through;
    All these keywords.

    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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