This paper develops a multi-country model of international trade that provides a simple micro-foundation for buyer-seller relationships in trade. We explore a rich dataset that identifies buyers and sellers in trade and establish a set of basic facts that guide the development of the theoretical model. We use predictions of the model to examine the role of buyer heterogeneity in a market for firm-level adjustments to trade shocks, as well as to quantitatively evaluate how firms? marginal costs depend on access to suppliers in foreign markets.

---

26 April 2016     Paper Number CEPDP1426

Download PDF - Two-sided heterogeneity and trade

This CEP discussion paper is published under the centre's Trade programme.