A simple model of buyer-seller networks in international trade

Author / Creator

Herkenhoff, Philipp, author

Available as

Online

Summary

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) mode...

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.

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