Working Paper: CEPR ID: DP16997
Authors: Jonathan Eaton; Samuel S. Kortum; Francis Kramarz
Abstract: Customs data reveal heterogeneity and granularity of relationships among buyers and sellers. Akey insight is how more exports to a destination break down into more firms selling there andmore buyers per exporter. We develop a quantitative general equilibrium model of firm-to-firmmatching that builds on this insight to separate the roles of iceberg costs and matching frictions ingravity. In the cross section, we find matching frictions as important as iceberg costs in impedingtrade, and more sensitive to distance. Because domestic and imported intermediates competedirectly with labor in performing production tasks, our model also fits the heterogeneity of laborshares across French producers. Applying the framework to the 2004 expansion of the EuropeanUnion, reduced iceberg costs and reduced matching frictions contributed equally to the increasein French exports to the new members. While workers benefitted overall, those competing mostdirectly with imports gained less, even losing in some countries entering the EU.
Keywords: No keywords provided
JEL Codes: F12; F14; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased exports to a destination (F10) | higher number of firms selling there (L19) |
| increased exports to a destination (F10) | increase in the number of buyers per exporter (F10) |
| lower matching frictions (F12) | raise the number of buyers per exporter (F10) |
| reduced iceberg costs (F12) | increase in French exports to new member states (F10) |
| reduced matching frictions (F16) | increase in French exports to new member states (F10) |
| interactions between firms and their suppliers (L14) | distribution of labor shares (D33) |
| degree of matching frictions (C78) | distribution of labor shares (D33) |