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Matching and Agglomeration: Theory and Evidence From Japanese Firm‐to‐Firm Trade

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  • Yuhei Miyauchi

Abstract

This paper shows that matching frictions and a thick market externality in firm‐to‐firm trade shape the agglomeration of economic activity. Using panel data of firm‐to‐firm trade in Japan, I demonstrate that firms gradually match with alternative suppliers following an unanticipated supplier bankruptcy, and that the rate of rematching increases in the geographic density of alternative suppliers. Motivated by these empirical findings, I develop a general equilibrium model of firm‐to‐firm matching in input trade across space. The model reveals that the thick market externality gives rise to an agglomeration externality affecting regional production and welfare. Using the calibrated model to the reduced‐form patterns of firm‐to‐firm matching, I estimate that the elasticity of a region's real wage with respect to population density due to the thick market externality is approximately 0.02. This finding highlights the substantial impact of the thick market externality on the overall agglomeration benefit.

Suggested Citation

  • Yuhei Miyauchi, 2024. "Matching and Agglomeration: Theory and Evidence From Japanese Firm‐to‐Firm Trade," Econometrica, Econometric Society, vol. 92(6), pages 1869-1905, November.
    • Handle: RePEc:wly:emetrp:v:92:y:2024:i:6:p:1869-1905
    DOI: 10.3982/ECTA19697
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    References listed on IDEAS

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    Cited by:

    1. Alessandro Ferrari & Lorenzo Pesaresi, 2025. "Specialization, Complexity & Resilience in Supply Chains," Papers 2509.08981, arXiv.org, revised Jan 2026.
    2. Li, Ying & Zhao, Chen, 2025. "From shared stakeholders to strategic linkages: The impact of common ownership on supply chain diversification," Research in International Business and Finance, Elsevier, vol. 80(C).
    3. Ninon Moreau-Kastler, 2025. "Proportional Treatment Effects in Staggered Settings: An Approach for Poisson Pseudo-Maximum Likelihood," Working Papers 031, EU Tax Observatory.
    4. Hiroyuki Asai & Makoto Nirei, 2025. "Friend-of-a-Friend in Production Networks: Micro Estimates and Macro Implications," CARF F-Series CARF-F-608, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    5. Kongphop Wongkaew & Yukiko Umeno Saito, 2025. "Voluntary firm exits and inter-firm transaction networks in an ageing society," The Japanese Economic Review, Springer, vol. 76(4), pages 927-955, October.

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