Assortative Matching of Exporters and Importers

Abstract

Abstract This paper studies how exporting and importing firms match based on their capability by investigating the change in such exporter-importer matching during trade liberalization. During the recent liberalization on the Mexico-US textile/apparel trade, exporters and importers often switch their main partners as well as change trade volumes. We develop a many-to-many matching model of exporters and importers where partner switching is the principal margin of adjustment, featuring Beckerian positive assortative matching by capability. Trade liberalization achieves efficient global buyer-supplier matching and improves consumer welfare by inducing systematic partner switching. The data confirm the predicted partner switching patterns.