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Firm Networks Trade and Growth

Final Report Summary - FINET (Firm Networks Trade and Growth)

This ERC-funded research project studies the importance of networks in international trade. It has generated four major scientific publications:

1- Thomas Chaney, “The Network Structure of International Trade,” American Economic Review, 2014.
2- Thomas Chaney, “The Gravity Equation in International Trade: An Explanation,” Journal of Political Economy, 2018.
3- Konrad Burchardi, Thomas Chaney, and Tarek Hassan, “Migrants, Ancestors, and Foreign Investments,” Review of Economic Studies, 2019.
4- Gojko Barjamovic, Thomas Chaney, Kerem Cosar, and Ali Hortacsu, “Trade, Merchants, and the Lost Cities of the Bronze Age,” Quarterly Journal of Economics, 2019.

In « The Network Structure of International Trade », I show that the network of linkages between importing and exporting firms evolves dynamically as information about potential trading partners percolates through this network. This network structure governs the distribution of firm level exports, and their evolution. In « The Gravity Equation in International Trade: An Explanation », I propose an explanation for the mysterious role of geographic distance in international trade: if the distribution of firm sizes are well approximated by Zipf’s law, as the data suggests, and if larger firms export over longer distances on average than small firms, then aggregate exports are inversely proportional to distance, as in the data. A network model of firm-to-firm international trade where information percolates through existing trade linkages can explain those facts. In « Migrants, Ancestors, and Foreign Investments », we show that the ethnic network inherited from historical migrations shapes the location decisions of multinational firms: locations that host more descendants from a foreign country also have more foreign direct investment to and from this country. We also show how to use historical migrations to isolate plausibly exogenous variations in the network of foreign ancestry in the United States. In « Trade, Merchants, and the Lost Cities of the Bronze Age », we recover the information from thousands of commercial records from Assyrian merchants in 1900BC. We reconstruct a measure of trade flows between ancient cities, and estimate a structural gravity model of trade in the Bronze Age. This model allows us to locate lost ancient cities. We also estimate the economic sizes of ancient cities, and show that cities strategically located in central nodes of the natural transportation network, given the features of the local terrain, are systematically larger, both in 1900BC and today.