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Goods-Market Frictions and International Trade

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Abstract

We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it takes time and expense for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of tariffs on trade flows.

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  • Pawel Krolikowski & Andrew H. McCallum, 2016. "Goods-Market Frictions and International Trade," Working Papers (Old Series) 1635, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1635
    DOI: 10.26509/frbc-wp-201635r
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    Cited by:

    1. Andrew B. Bernard & Andreas Moxnes, 2018. "Networks and Trade," Annual Review of Economics, Annual Reviews, vol. 10(1), pages 65-85, August.
    2. Jaerim Choi, 2021. "Two-sided heterogeneity, endogenous sharing, and international matching markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(2), pages 473-509, September.
    3. Costas Arkolakis & Federico Huneeus & Yuhei Miyauchi, 2023. "Spatial Production Networks," NBER Working Papers 30954, National Bureau of Economic Research, Inc.
    4. Clémence Lenoir & Julien Martin & Isabelle Mejean, 2023. "Search Frictions in International Goods Markets," Journal of the European Economic Association, European Economic Association, vol. 21(1), pages 326-366.
    5. Xiwen Bai & Jesús Fernández-Villaverde & Yiliang Li & Francesco Zanetti, 2024. "The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory," Economics Series Working Papers 1033, University of Oxford, Department of Economics.
    6. Giulia Brancaccio & Myrto Kalouptsidi & Theodore Papageorgiou, 2020. "Geography, Transportation, and Endogenous Trade Costs," Econometrica, Econometric Society, vol. 88(2), pages 657-691, March.
    7. Spray, J., 2101. "Search Externalities in Firm-to-Firm Trade," Cambridge Working Papers in Economics 2108, Faculty of Economics, University of Cambridge.
    8. Lincoln, William F. & McCallum, Andrew H., 2018. "The rise of exporting by U.S. firms," European Economic Review, Elsevier, vol. 102(C), pages 280-297.
    9. Monarch, Ryan & Schmidt-Eisenlohr, Tim, 2023. "Longevity and the value of trade relationships," Journal of International Economics, Elsevier, vol. 145(C).
    10. Carballo, Jerónimo & Rodriguez Chatruc, Marisol & Salas Santa, Catalina & Volpe Martincus, Christian, 2022. "Online business platforms and international trade," Journal of International Economics, Elsevier, vol. 137(C).
    11. Brancaccio, Giulia & Kalouptsidi, Myrto & Papageorgiou, Theodore, 2020. "A guide to estimating matching functions in spatial models," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    12. Guo, Qi & Zhang, Peng & Zhu, Shengjun & Liu, Junyang, 2023. "Export market relatedness, geographical diversification and regional export growth in China," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 336-346.
    13. Jules Depersin & B'ereng`ere Patault, 2023. "Revisiting the effect of search frictions on market concentration," Papers 2303.01824, arXiv.org.

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    20. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    21. repec:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    22. Patrick Alexander, 2016. "Producer Heterogeneity, Value-Added, and International Trade," Staff Working Papers 16-54, Bank of Canada.
    23. Khan, Shafaat Yar & Khederlarian, Armen, 2021. "How does trade respond to anticipated tariff changes? Evidence from NAFTA," Journal of International Economics, Elsevier, vol. 133(C).
    24. Bolatto, Stefano & Moramarco, Graziano, 2023. "Gains from trade and their quantification: Does sectoral disaggregation matter?," International Economics, Elsevier, vol. 174(C), pages 44-68.

    More about this item

    Keywords

    Search; trade; goods; frictions; information;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

    NEP fields

    This paper has been announced in the following NEP Reports:

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