Goods-market frictions and international trade

Abstract

We add goods-market frictions to a general equilibrium dynamic model with heterogeneous exporting producers and identical importing retailers. Our tractable framework leads to endogenously unmatched producers, which attenuate welfare responses to foreign shocks but increase the trade elasticity relative to a model without search costs. Search frictions are quantitatively important in our calibration, attenuating welfare responses to tariffs by 40 percent and increasing the trade elasticity by 50 percent. Eliminating search costs raises welfare by 1 percent and increasing them by only a few dollars has the same effects on welfare and trade fl ows as a 10 percent tariff.

Networks and Trade

“…Krolikowski and McCallum (2016) model search frictions with heterogeneous exporters and identical importers. Search frictions induce selection into exporting, alter the gains from trade and result in a lower than optimal number of searching firms.…”

Search Frictions in International Goods Markets

“…Several recent contributions have also studied this topic theoretically. Krolikowski and McCallum (2018) introduce random matching frictions in a Melitz (2003) type framework. In their model, matched producers trade with a single buyer within a country.…”

Gains from Trade and the Food Engel Curve

“…Farrokhi and Pellegrina, 2022) and search frictions (e.g. Krolikowski and McCallum, 2021;Eaton et al, 2021Eaton et al, , 2022.…”