Isabelle Mejean, Sciences Po

"Frictions and adjustments in firm-to-firm trade"

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.

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Contact person: Jeppe Druedahl