Trade Policy on a Buyer-Seller Network
The welfare effects of trade policy are shaped by the outcomes of imports reallocation and price changes. In this paper, I show that these outcomes crucially depend on whether importing firms are matched with multinational suppliers or with single-country producers. I study an antidumping duty imposed by Colombia on the imports of Chinese truck tires. In the data I observe the full network of Colombian importers and global exporters, some of which are multi-origin and some of which are single-origin. Due to the policy, approximately 75% of imports of tires that originated in China were reallocated into other origins, and the bulk of this reallocation was undertaken by importers matched with multi-origin exporters. I estimate a quantitative trade framework to match the reallocation and price changes in the data. I find that under a counterfactual network without multinational suppliers, the increase in the price index from the policy would have been almost twice the size of the actual change. The analysis suggests that ignoring the network structure could lead to sizable biases in predicting the welfare effects of tariffs.
Purchase Obligations and Hedging – joint with Alvaro Boitier
Commodity price shocks have negative consequences for developed economies that rely heavily on imported materials. However, firms employ risk management instruments to reduce their exposure. In this paper we study how the use of supply contracts by firms can shape the transmission of commodity price shocks to aggregate variables. We focus on purchase obligations which are supply contracts with fixed prices for the delivery of goods for future periods. We rely on a novel dataset to document two empirical findings. First, we find a large exposure reduction to commodity price risk from firms using these contracts. Our estimates suggest a reduction of about 10.2% to 45.2% compared to non-users. Second, sector output and labor compensation have a smaller negative correlation with commodity prices when firms trade larger contracts. We assess the aggregate quantitative role of these contracts by introducing and calibrating a tractable general equilibrium model. We measure the contribution of purchase obligations in dampening the aggregate transmission of commodity price shocks by constructing a counterfactual where firms are not allowed to trade these contracts. Our results show that when firms engage in purchase obligations, real consumption has a relative response of 6.2% less to a 10% commodity price shock.
Export Dynamics and Market Exploration: Evidence From Mexican Exporters
This paper explores the dynamics of Mexican exporters upon entry to foreign markets. I document a decline in average growth and failure rates as firms enter new export destinations. These patterns reflect that in their initial set of destinations, exporters adjust their sales more than they do in subsequent markets. I develop a model of multi-market demand learning that rationalizes this behavior through knowledge accumulation and the delay in expansion to new destinations. Under the assumption that knowledge can be carried over to destinations according to their market similarity, a trade-off arises. A larger number of destinations targeted upon entry can give firms a faster understanding of foreign market conditions. However, such strategies might be prohibitively expensive to some exporters. Therefore, a few initial destinations might be used by exporters to “test the grounds” for subsequent similar markets. The patterns of entry and market similarities between destinations in the data suggest the possibility that a learning mechanism is an underlying part of the dynamics that we observe.