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Imported Intermediate Inputs and Domestic Product Growth: Evidence from India

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Author Info
Pinelopi K. Goldberg
Amit Khandelwal
Nina Pavcnik
Petia Topalova

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Abstract

New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from a large developing economy—India—to investigate the relationship between declines in trade costs, the imports of intermediate inputs and domestic firm product scope. We estimate substantial static gains from trade through access to new imported inputs. Accounting for new imported varieties lowers the import price index for intermediate goods on average by an additional 4.7 percent per year relative to conventional gains through lower prices of existing imports. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms, which implies potentially large dynamic gains from trade. This expansion in firms' product scope is driven to a large extent by international trade increasing access of firms to new input varieties rather than by simply making existing imported inputs cheaper. Hence, our findings suggest that an important consequence of the input tariff liberalization was to relax technological constraints through firms’ access to new imported inputs that were unavailable prior to the liberalization.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14416.

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Date of creation: Oct 2008
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Handle: RePEc:nbr:nberwo:14416

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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Cited by:
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  1. Eslava, Marcela & Haltiwanger, John C. & Kugler, Adriana & Kugler, Maurice, 2009. "Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia," IZA Discussion Papers 4256, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  2. Emi Nakamura & Jón Steinsson, 2009. "Lost in Transit: Product Replacement Bias and Pricing to Market," NBER Working Papers 15359, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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