Discussion paper

DP16278 A Simple Model of Buyer-Seller Networks in International Trade

The recent literature on firm-to-firm trade has documented salient empirical regularities of the buyer-seller network. We propose a simplistic re-interpretation of the classical Krugman (1980) model that accounts for surprisingly many of the empirical regularities. This re-interpretation 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.

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Citation

Herkenhoff, P, S Krautheim and P Sauré (eds) (2021), “DP16278 A Simple Model of Buyer-Seller Networks in International Trade”, CEPR Press Discussion Paper No. 16278. https://new.cepr.org/publications/dp16278