Working Paper

A Simple Model of Buyer-Seller Networks in International Trade

Philipp Herkenhoff, Sebastian Krautheim, Philip Sauré
CESifo, Munich, 2021

CESifo Working Paper No. 9124

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.

CESifo Category
Trade Policy
Keywords: firm-to-firm, buyer-seller, trade, network, random matching
JEL Classification: F100, F120, F140