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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. George Alessandria, 2004. "International Deviations From The Law Of One Price: The Role Of Search Frictions And Market Share," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1263-1291, November.
    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. 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.
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    6. repec:hal:spmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke is not listed on IDEAS
    7. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
    8. repec:spo:wpmain:info:hdl:2441/3lmdaefcr886ao8sahjmam30ke 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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