In the first part of the project, I have developed theoretical models that I can bring to the data to study the matching of firms with their suppliers in international markets and the dynamics of their relationship, conditional on a match. The underlying assumption is that finding international suppliers for specific inputs is not easy, which we represent using the concept of “frictional product markets”. I then exploit statistics on the likelihood that a firm finds a new supplier for one of its inputs to measure the magnitude of these “frictions”. The existence of these frictions also means that firms are somewhat “locked” in firm-to-firm relationships, which has consequences for price bargaining. This part of the TRADENET project has already led to two publications in peer-reviewed journals and one working paper that is in the process of being published.
In the second part of the project, I instead take the structure of the firm-to-firm network as given and study the consequences of this structure for the propagation of shocks across countries. I rely on administrative data covering the universe of French firms, their balance-sheet information and a detailed view of their international activities. Based on these data, I first show how the international activity of a few large firms can be a source of exposure to foreign shocks. While a minority of firms participate to international trade, they are larger than the average. Their international activity exposes them to foreign shocks, which I show can explain around one third of the comovement of the French economy with foreign countries. In theory, international trade is a vector of risk diversification. In practice, the structure of international trade is much less diversified than would be needed for the diversification to be effective. The majority of exporting firms, including the largest ones, have export portfolios that are concentrated on one or two main partners. I show that this lack of diversification is a major source of the volatility of trade in the aggregate. Finally, another source of risk that internationally active firms are exposed to is a risk to their supply chain. Leveraging upon the Covid experience, I show that firms that were exposed to China in January 2020, when the country entered into an early lockdown, performed systematically worse than other firms involved in GVCs that were not exposed to China. I show that the transmission is weakened among firms with inventory buffers. The part of the TRADENET project has led to five publications in peer-reviewed journals, several policy notes and blog columns, and a number of media and policy interventions.
