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Trade Models with Heterogeneous Firms: What About Importing?

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  • Gibson, Mark
  • Graciano, Tim

Abstract

Intermediate goods make up a large share of world trade. Yet trade models with heterogeneous firms focus almost exclusively on firms’ export decisions rather than their import decisions. We develop an analytically solvable model of a small open economy in which heterogeneous firms make endogenous import decisions. We view decisions about importing as decisions about technology adoption. In our model, firms weigh the benefit of operating a technology that uses imported intermediate goods against the fixed cost of developing trade relationships with foreign input suppliers. Similar to the selection effect in standard export-decision models, only the most efficient firms choose to import. In addition, the model features a technology upgrading effect, where importing improves a firm’s labor efficiency. The calibrated model quantifies the selection and technology upgrading effects, captures the large performance advantage associated with using imported intermediate goods, and generates large increases in trade from small decreases in tariffs.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33048.

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Date of creation: 01 Jul 2011
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Handle: RePEc:pra:mprapa:33048

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Keywords: hetrogenious firms; importing; Chile; fixed costs;

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  1. Gita Gopinath & Brent Neiman, 2011. "Trade Adjustment and Productivity in Large Crises," NBER Working Papers, National Bureau of Economic Research, Inc 16958, National Bureau of Economic Research, Inc.
  2. Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2006. "Trade Integration, Firm Selection and the Costs of Non-Europe," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 218, Centro Studi Luca d\'Agliano, University of Milano.
  3. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, Elsevier, vol. 42(2), pages 217-242, December.
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  7. Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajna, 2011. "Trade Liberalization, Growth, and Productivity," 2011 Meeting Papers, Society for Economic Dynamics 794, Society for Economic Dynamics.
  8. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1707-21, September.
  9. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 87(1), pages 106-118, August.
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  11. Kasahara, Hiroyuki & Lapham, Beverly, 2013. "Productivity and the decision to import and export: Theory and evidence," Journal of International Economics, Elsevier, Elsevier, vol. 89(2), pages 297-316.
  12. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, Elsevier, vol. 47(2), pages 321-344, April.
  13. Davide Castellani & Francesco Serti & Chiara Tomasi, 2008. "Firms in International Trade: Importers and Exporters Heterogeneity in the Italian Manufacturing Industry," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2008/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  14. Ananth Ramanarayanan, 2007. "International Trade Dynamics with Intermediate Inputs," 2007 Meeting Papers, Society for Economic Dynamics 722, Society for Economic Dynamics.
  15. Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are Shocks to the Terms of Trade Shocks to Productivity?," NBER Working Papers, National Bureau of Economic Research, Inc 13111, National Bureau of Economic Research, Inc.
  16. László Halpern & Miklós Koren & Adam Szeidl, 2011. "Imported Inputs and Productivity," CeFiG Working Papers, Center for Firms in the Global Economy 8, Center for Firms in the Global Economy, revised 16 Sep 2011.
  17. Kim J. Ruhl, 2008. "The International Elasticity Puzzle," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 08-30, New York University, Leonard N. Stern School of Business, Department of Economics.
  18. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5104, C.E.P.R. Discussion Papers.
  19. Mark J. Gibson & Tim A. Graciano, 2011. "The Decision to Import," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 93(2), pages 444-449.
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