Search Frictions in International Good Markets

We develop and estimate a model of search frictions in international good markets and study its implications for individual and aggregate trade flows. We introduce random meeting of buyers in an otherwise standard Eaton and Kortum (2002) (EK) framework. We show that search frictions impede aggregate exports but have a non-trivial impact on individual firms' trade. A reduction in these frictions increases sellers' exposure to foreign buyers but also reduces their chance to be the lowest cost supplier because of more competition among sellers. We build on this model to structurally estimate search frictions faced by French exporters using a generalized method of moments and firm-to-firm French export data. We document the magnitude of these frictions across sectors and destinations and show that their presence help; i) reconcile the EK framework with heterogeneity in firm-level export behaviours; and ii) quantify the relative role of search frictions and productivity heterogeneity in the selection of firms into export.