Working Paper: CEPR ID: DP13442
Authors: Clemence Lenoir; Julien Martin; Isabelle Mejean
Abstract: This paper studies how search frictions in international good markets can distort competition between firms of heterogeneous productivity. We add bilateral search frictions between buyers and sellers in a Ricardian model of trade. Search frictions prevent buyers from identifying the most productive sellers which induces competitive distortions and benefits low-productivity firms at the expense of high-productivity ones. We use French firm-to-firm trade data and a GMM estimator to recover search frictions faced by French exporters at the product and destination level. They are found more severe in large and distant countries and for products that are more differentiated. In a counterfactual exercise, we show that reducing the level of search frictions leads to an improvement in the efficiency of the selection process because the least productive exporters are pushed out of the market while the export probability and the conditional value of exports increase at the top of the productivity distribution. As a consequence, the mean productivity of exporters increases significantly.
Keywords: firm-to-firm trade; search frictions; Ricardian trade model; structural estimation
JEL Codes: F10; F11; F14; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| search frictions (F12) | average productivity of exports (F10) |
| search frictions (F12) | share of low-productivity sellers in the market (L11) |
| share of low-productivity sellers in the market (L11) | average productivity of exports (F10) |
| reducing search frictions (D83) | efficiency of selection process (C52) |
| efficiency of selection process (C52) | export probability for high-productivity firms (F16) |
| export probability for high-productivity firms (F16) | mean productivity of exporters (F14) |
| reducing search frictions (D83) | mean productivity of exporters (F14) |