This paper examines what determines matching of exporters and importers by investigating how matching changes in a large trade liberalization episode. In Mexican textile/apparel exports to the US, both exporters and importers concentrate more than 80% of product-level trade with the single largest partners (the main partners). To understand how firms choose the main partners and change them in response to liberalization, our model introduces one-to-one matching of exporters and importers based on the complementarity/substitutability of firm capability (productivity/quality) within matches in an otherwise standard heterogeneous firm trade model. Our data shows increases in Chinese exporters to the US at the end of the Multi-Fiber Arrangement in 2005 caused Mexican exporters to downgrade and US importers to upgrade their main partners. Our model shows this pattern is consistent with complementary-driven positive assortative matching, but not with capability-independent random matching or substitutability-driven negative assortative matching. The presence of complementarity we find suggests trade liberalization improves matching of firms in supply chains as a part of within industry reallocation that improves the aggregate industrial performance.
Sugita, Y.; Teshima, K.; Seira, E. PEDL Research Paper. Assortative Matching of Exporters and Importers. (2014) 56 pp.