Assortative Matching of Exporters and Importers

This paper examines what determines matching of exporters and importers. Both exporters and importers concentrate more than 80% of product-level trade volume on trade with the largest partner firm in Mexican textile/apparel exports to the US. Motivated by this new fact, we develop a one-to-one matching model of exporters and importers where the complementarity/substitutability of capability (productivity/quality) within matches determines the sign of sorting in matching. 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. This pattern is consistent with complementary-driven positive assortative matching, but not with capability-independent random matching or substitutability-driven negative assortative matching. Our finding suggests trade liberal- ization improves matching of firms in global supply chains as a part of within industry reallocation that improves the aggregate industrial performance.