Assortative matching of exporters and importers

This paper uses the opening of the US textile/apparel market for China at the end of the Multifibre Arrangement in 2005 as a natural experiment to provide evidence for positive assortative matching of Mexican exporting firms and US importing firms by their capability. We identify three findings for liberalized products by comparing them to other textile/apparel products: (1) US importers switched their Mexican partners to those making greater preshock exports, whereas Mexican exporters switched their US partners to those making fewer preshock imports; (2) for firms who switched partners, trade volume of the old partners and the new partners are positively correlated; (3) small Mexican exporters stop exporting. We develop a model combining Becker-type matching of final producers and suppliers with the standard Melitz-type model to show that these findings are consistent with positive assortative matching but not with negative assortative matching or purely random matching. The model indicates that the findings are evidence for a new mechanism of gain from trade.