Volatility in the Small and in the Large: The Lack of Diversification in International Trade

Abstract

We study how different sources of fluctuations interact with the micro-structure of trade networks to shape the volatility of exports at the firm-level and in the aggregate. Four shocks affect transactions -- a macroeconomic shock and three individual shocks hitting the exporters, their foreign partners, and their matches. We structurally estimate these shocks using data on the transactions connecting French exporters to their individual European buyers. Individual shocks explain half of aggregate fluctuations and the entirety of individual fluctuations. The volatility of sales across firms and countries are well-explained by the cross-sectional heterogeneity in the diversification of their trade networks.

Keywords: Aggregate fluctuations, Firm-level volatility, firm-to-firm trade

JEL Classification: D22, E32, F14