As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Geneva Graduate Institute is pleased to invite you to a public talk given by Julia Cajal-Grossi, Professor of International Economics at the Graduate Institute.
She will present her work titled Searching for Trade Partners in Developing Countries
Abstract: Multinationals’ reputation in high-income countries is increasingly tied to the behavior of their foreign suppliers. How do buyers find suitable suppliers in low-income countries? Using customs records from Bangladesh’s garment sector, this paper shows that when starting to source a product, buyers experiment with potential suppliers through small-scale, short-lived interactions before forming lasting relationships. While large buyers experiment more than smaller buyers on average, they experiment less when quality dispersion among potential suppliers is high—a counterintuitive finding from the perspective of search theory. I rationalize these empirical facts with a model of sequential search with reputational risk, and highlight an important trade-off for international buyers: on the one hand, when quality dispersion is high, buyers experiment more in hopes of finding a high-quality recurrent trade partner; on the other, in doing so they may unknowingly experiment with a low-quality supplier who damages their reputation. The model characterizes the optimal amount of experimentation and the threshold supplier quality at which buyers should settle. It yields two difference-in-differences relationships that I test in the data, exploiting exogenous variation in buyers’ reputation concerns after the largest industrial accident in the history of the garment sector. In line with the model, the shock to reputation concerns led to less experimentation and worse matches among large (plausibly more reputation-sensitive) buyers in product categories with high supplier quality dispersion.
About the Speaker
Julia Cajal Grossi joined the faculty in 2016 after completing her PhD at the University of Warwick and being awarded the Robert Solow Postdoctoral Fellowship by the Cournot Center. She is an empirical microeconomist and her research focuses on development, industrial organization, and trade. Her current work studies buyer-seller relationships in international trade.