Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316947 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11833
Publisher: 
CESifo GmbH, Munich
Abstract: 
We study the aggregate implications of production network formation in a quantitative multi-location general equilibrium trade model. Firms search for suppliers and buyers across locations subject to matching frictions, generating a gravity structure of production networks. We develop sufficient statistics for global and regional welfare and characterize the deviations from the fixed network environment, including the role of inefficiency and amplification effects of search and matching. We calibrate our multi-sector model to Chilean domestic and international firm-to-firm trade data and show that our model can rationalize the observed increase in domestic supplier linkages after Chile's recent trade agreements. Abstracting from endogenous networks reduces Chile's aggregate welfare losses by 20 percent when import costs are raised to their pre-agreement levels, consistent with inefficiently low equilibrium levels of search. Fixing the trade elasticity, the welfare gains from trade relative to municipality autarky drop by 40 percent due to amplification effects of search.
Subjects: 
production networks
welfare gains from trade
search and matching.
JEL: 
F10
R13
Document Type: 
Working Paper
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