Cover IMF Working Papers
Search Externalities in Firm-to-Firm Trade
Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 091
Language:
English
Publication Date:
19 Mar 2021
DOI:
https://doi.org/10.5089/9781513572611.001
ISBN:
9781513572611
ISSN:
1018-5941
Pages:
80
Keywords:
Firm-to-Firm Trade; VAT Data; Search-and-Matching; Importing; transport cost reduction; buyer-supplier search; search externality; welfare gains from trade; consumer welfare; Imports; Labor market frictions; Search models; Value-added tax; East Africa; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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 document empirical evidence consistent with positive externalities in international markets and negative externalities in domestic markets. I then build a dynamic quantitative version of the model and show that, in Uganda, a 25% reduction in trade costs led to a 3.7% increase in consumer welfare, 12% of which was due to search externalities.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2021: Issue 091