Information Frictions and International Trade

Paper Session

Saturday, Jan. 7, 2017 8:00 AM – 10:00 AM

Hyatt Regency Chicago, Addams
Hosted By: Econometric Society
  • Chair: Andrew McCallum, Federal Reserve Board

Goods-market Frictions and International Trade

Pawel Michal Krolikowski
,
Federal Reserve Bank of Cleveland
Andrew McCallum
,
Federal Reserve Board

Abstract

We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it takes time and expense for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the decentralized equilibrium does not generally result in the socially optimal number of searching firms. Estimates of our parameters from prior studies demonstrate these frictions have quantitatively large effects on aggregate quantities. Finally, ignoring search frictions results in biased estimates of the effect of tariffs on trade flows.

The US-Canada Border Effect: Evidence from Online Commerce

Bo Cowgill
,
Columbia University
Cosmina Dorobantu
,
University of Oxford

Abstract

How do national borders affect trade? We examine the US-Canada border effect using a large, proprietary dataset from Google, which covers search, advertising, and ecommerce for a wide variety of economic sectors. We document a large, statistically significant US-Canada border effect, even in a setting with relatively low search costs: Intranational trade is 6.7 times higher than international trade in our data. We find that a large fraction of the US-Canada border coefficient (about 1/3rd) arises from consumer behavior after arriving on a compatible seller's website. The remaining 2/3rds appears in arrival rates on sellers' websites. We also find a strong border effect in virtual goods and downloadable products which do not require shipping, as well as business-to-consumer trades in final goods (rather than intermediate goods). When we disaggregate our data by economic sector, we find widely varying border effects. The sectors with the highest US-Canada border effects feature services whose consumption is tied to particular location, and goods that face large regulatory and bureaucratic hurdles at the border.

The Value of Reputation in Trade: Evidence From Alibaba

Maggie X. Chen
,
George Washington University
Min Wu
,
George Washington University

Abstract

Information frictions are prevalent in the search for exporters especially in developing nations. In this paper, we examine the value of reputation in international trade by exploring China's T-shirt exports on the world's leading trade platform, Alibaba. We first present four new stylized facts about the distribution of Alibaba exports: (1) exports are exceedingly concentrated on superstar exporters; (2) the distribution of price closely mirrors the distribution of exporter reputation while the distribution of export volume is more dispersed; (3) the distribution of exporter revenue becomes more dispersed as exporters age; and (4) the market share of superstar exporters diminishes with the experience of importers. Exploiting qualitative and quantitative attributes of Alibaba's reputation measures, we explain the stylized facts and investigate the heterogeneous trade responses to reputation across countries and over time. We develop a dynamic pricing and reputation model with heterogeneous exporters to show high-quality exporters subsidize learning and earn export premium over time. Our structural estimation finds that observable reputation leads to a 34-percent increase in aggregate export revenue, equivalent to a 29-percent market-wide quality upgrading, and the growth is driven by a dramatic shift in export market allocation towards superstar exporters with the share of top 1-percent exporters rising by 66 percent.

Drivers of Fragmented Production Chains: Evidence from the 19th Century

Claudia Steinwender
,
Harvard University
Reka Juhasz
,
Columbia University

Abstract

Instantaneous communication via the Internet and efficient shipping of goods across the globe are widely believed to have caused the global fragmentation of production processes that we observe today. In this paper we test this hypothesis examining British exports of intermediates and final goods in the cotton textile industry during the 19th century. This allows us to exploit exogenous variation in the roll-out of the global telegraph network and the opening of the Suez Canal in 1869 to estimate causal effects. The trade enhancing effects of reducing communication and shipping times depend on the production stage: Improvements in communication time disproportionately increase exports of intermediate goods, while improvements in shipping time disproportionately increase exports of final goods.
Discussant(s)
Treb Allen
,
Northwestern University
Colin J. Hottman
,
Federal Reserve Board
David Jinkins
,
Copenhagen Business School
James Rauch
,
University of California-San Diego
JEL Classifications
  • F0 - General