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Behind the International Trade Network: the Role of Heterogeneity and Financial Frictions

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  • Elisa Grugni
  • Giorgio Ricchiuti

Abstract

Modern economies exhibit deeply integrated and synchronized networks among heterogeneous agents. This paper focuses on the trade network and seeks to unravel the mechanisms that underpin its emergence and evolution. To this end, we develop a multi-country general equilibrium model of trade that incorporates firms and countries heterogeneity as well as asymmetric information and financial frictions. Within this framework, the export decisions of firms give rise to an international trade network that mirrors the structure of real-world trade flows. Thus, the model, by encompassing both within and between country heterogeneity, facilitates the investigation of a range of stylized facts pertaining to firm exporting behavior and globalization. Once the network is established, the paper aims at capturing the effects of financial shocks on trade flows and their network-based spillovers. The introduction of a credit market in a trade model provides novel insights on the influence of monetary and financial factors on trade patterns.

Suggested Citation

  • Elisa Grugni & Giorgio Ricchiuti, 2024. "Behind the International Trade Network: the Role of Heterogeneity and Financial Frictions," Working Papers - Economics wp2024_26.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  • Handle: RePEc:frz:wpaper:wp2024_26.rdf
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    References listed on IDEAS

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    1. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    2. Chor, Davin & Manova, Kalina, 2012. "Off the cliff and back? Credit conditions and international trade during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 117-133.
    3. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 333-359.
    4. Andrea Caggese & Vicente Cunat, 2013. "Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 177-193, January.
    5. Minetti, Raoul & Zhu, Susan Chun, 2011. "Credit constraints and firm export: Microeconomic evidence from Italy," Journal of International Economics, Elsevier, vol. 83(2), pages 109-125, March.
    6. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    More about this item

    Keywords

    trade; productivity; net worth; financial frictions; network analysis;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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