Goods-Market Frictions and International Trade

99 Pages Posted: 30 May 2017

See all articles by Pawel Michal Krolikowski

Pawel Michal Krolikowski

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Andrew H. McCallum

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: 2017-05-23

Abstract

We present a tractable framework that embeds goods-market frictions in a general equilibrium dynamic model with heterogeneous exporters and identical importers. These frictions arise because it is time consuming and expensive for exporters and importers to meet. We show that search frictions lead to an endogenous fraction of unmatched exporters, alter the gains from trade, endogenize entry costs, and imply that the competitive equilibrium does not generally result in the socially optimal number of searching firms. Finally, ignoring search frictions results in biased estimates of the effect of tariffs on trade flows.

Keywords: Search, Trade, Goods, Frictions, Information

JEL Classification: D83, F12

Suggested Citation

Krolikowski, Pawel Michal and McCallum, Andrew Harrison, Goods-Market Frictions and International Trade (2017-05-23). FRB International Finance Discussion Paper No. 1207. Available at SSRN: https://ssrn.com/abstract=2975733 or http://dx.doi.org/10.17016/IFDP.2017.1207

Pawel Michal Krolikowski (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Andrew Harrison McCallum

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.andrewhmccallum.com

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