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Goods-Market Frictions and International Trade

Author

Abstract
We add goods-market frictions to a general equilibrium dynamic model with heterogeneous exporting producers and identical importing retailers. Our tractable framework leads to endogenously unmatched producers, which attenuate welfare responses to foreign shocks but increase the trade elasticity relative to a model without search costs. Search frictions are quantitatively important in our calibration, attenuating welfare responses to tariffs by 40 percent and increasing the trade elasticity by 50 percent. Eliminating search costs raises welfare by 1 percent and increasing them by only a few dollars has the same effects on welfare and trade flows as a 10 percent tariff.

Suggested Citation

  • Pawel Krolikowski & Andrew H. McCallum, 2019. "Goods-Market Frictions and International Trade," Working Papers 16-35R2, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:163502
    DOI: 10.26509/frbc-wp-201635r2
    Note: This is the second revision of the paper. The first version was published in December 2016 and the second version in September 2018.
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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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    22. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    23. repec:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m01g1j1k2 is not listed on IDEAS
    24. Pushan Dutt & Ana Maria Santacreu & Daniel A. Traça, 2022. "The gravity of experience," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(1), pages 213-248, February.

    More about this item

    Keywords

    trade; Search; constrained optimization; welfare;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • 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

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