Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305544 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11302
Publisher: 
CESifo GmbH, Munich
Abstract: 
We study the role of firm heterogeneity and imperfect competition for global production networks and the gains from trade. We develop a quantifiable trade model with two-sided firm heterogeneity, matching frictions, and oligopolistic competition upstream. More productive buyers endogenously match with more suppliers, thereby inducing tougher competition among them to enjoy lower input costs and superior performance. Transaction-level customs data confirms that downstream French and Chilean firms import higher values and quantities at lower prices as upstream Chinese markets become more competitive over time, with stronger responses by larger firms. Moreover, suppliers charge more diversified buyers lower mark-ups. Counterfactual analysis indicates that entry upstream benefits high-productivity buyers, while lower matching or trade costs benefit all buyers, with the biggest boost to mid-productivity buyers. All three shocks generate sizeable welfare gains, especially under package reforms. Global production networks thus mediate bigger effects and cross-border spillovers from industrial and trade policies.
Subjects: 
production networks
global value chains
matching frictions
imperfect competition
gains from trade
JEL: 
D24
F10
F12
F14
L11
L22
Document Type: 
Working Paper
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