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Search Externalities in Firm-to-Firm Trade

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  • Spray, J.

Abstract

I develop a model of firm-to-firm search and matching to show that the impact of falling trade costs on firm sourcing decisions and consumer welfare depends on the relative size of search externalities in domestic and international markets. These externalities can be positive if firms share information about potential matches, or negative if the market is congested. Using unique firm-to-firm transaction-level data from Uganda, I show empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version for the model and show that, in Uganda, a 25% reduction in trade costs led to a 5.2% increase in consumer welfare, 15% of which was due to search externalities.

Suggested Citation

  • Spray, J., 2101. "Search Externalities in Firm-to-Firm Trade," Cambridge Working Papers in Economics 2108, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2108
    Note: jaos2
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    References listed on IDEAS

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    More about this item

    Keywords

    Firm-to-Firm Trade; VAT Data; Search-and-Matching; Importing;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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