This paper develops a general equilibrium model of international trade with heterogeneous exporters and heterogeneous importers. This theory is guided by new findings drawn from a matched exporter-importer dataset that characterizes the relationships between exporting and importing firms. I find that most exporters have a single importing partner, that highly productive exporters tend to trade with highly productive importers, and that the value traded is positively correlated with both exporter and importer productivities. The model analyzes the selection of exporters and importers into trading pairs and features simultaneous free entry into exporting and into importing. This theory provides a rationale for the fixed costs of entering export markets, associating them with the costs of searching for importing firms that distribute a product to final consumers abroad. I test this theory by studying the response of exporting and importing firms to the recent Colombia-U.S. free trade agreement. This evidence illustrates a novel mechanism of adjustment of U.S. firms to trade liberalization.
|Journal of International Economics
|Published - Jul 2021
Bibliographical notePublisher Copyright:
© 2021 Elsevier B.V.
- Free trade agreement
- Heterogeneous firms
ASJC Scopus subject areas
- Economics and Econometrics