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A simple model of buyer–seller networks in international trade

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  • Herkenhoff, Philipp
  • Krautheim, Sebastian
  • Sauré, Philip

Abstract

The recent literature on firm-to-firm trade has documented salient empirical regularities of the buyer–seller network. We show that surprisingly many of these regularities emerge by superimposing the stochastic balls-and-bins structure of Armenter and Koren (2014) to firms in a classical Krugman (1980) model. Our approach amounts to a re-interpretation of Krugman (1980) and relies on randomized bundling of Krugman-varieties into heterogeneous firms, economically neutral ‘sales units’ that import foreign varieties but belong to local firms, and a statistical reporting threshold that applies to firm-to-firm transactions. We argue that our model provides an important benchmark for the assessment of theoretical models that aim to identify the determinants of firm-to-firm networks.

Suggested Citation

  • Herkenhoff, Philipp & Krautheim, Sebastian & Sauré, Philip, 2024. "A simple model of buyer–seller networks in international trade," European Economic Review, Elsevier, vol. 170(C).
  • Handle: RePEc:eee:eecrev:v:170:y:2024:i:c:s0014292124001971
    DOI: 10.1016/j.euroecorev.2024.104868
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    More about this item

    Keywords

    Firm-to-firm; Buyer–seller; Trade; Network; Random matching;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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