Adriana Alejandra López Espino (Pennsylvania State University)
This paper develops a firm-to-firm trade model with granular production networks. I show that modeling a network like a graph is needed to study the impact of trade policies in the presence of large economic players, like firms or sectors. This level of disaggregation is relevant when analyzing targeted shocks or policies whose effect may vary considerably across firms and may affect different firms asymmetrically. I use recent contributions to the matching literature to provide a new notion of equilibrium in which the production network is chain stable. Firms link with providers and clients and assign a different value to each relationship. This value depends on the other links. For instance, indirect upstream links affect the link's value with a provider via the provider's marginal cost. In contrast, indirect downstream links affect the value of the relationship with a client via the demand that the client faces. I exploit this framework to quantify the effect of the new rules of origin established by the USMCA for the automotive sector on firms’ outcomes, network adjustments, and consumers’ welfare.
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