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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. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
  2. Mirabelle Muuls & Mauro Pisu, 2007. "Imports and exports at the level of the firm: evidence from Belgium," LSE Research Online Documents on Economics 19711, London School of Economics and Political Science, LSE Library.
  3. Kasahara, Hiroyuki & Lapham, Beverly, 2013. "Productivity and the decision to import and export: Theory and evidence," Journal of International Economics, Elsevier, vol. 89(2), pages 297-316.
  4. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December.
  5. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
  6. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
  7. Gita Gopinath & Brent Neiman, 2014. "Trade Adjustment and Productivity in Large Crises," American Economic Review, American Economic Association, vol. 104(3), pages 793-831, March.
  8. Timothy J. Kehoe & Mark J. Gibson & Kim J. Ruhl & Claustre Bajna, 2011. "Trade Liberalization, Growth, and Productivity," 2011 Meeting Papers 794, Society for Economic Dynamics.
  9. Joel Rodrigue & Hiroyuki Kasahara, 2004. "Does the Use of Imported Intermediates Increase Productivity? Plant-Level Evidence," Econometric Society 2004 North American Summer Meetings 511, Econometric Society.
  10. Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2006. "Trade Integration, Firm Selection and the Costs of Non-Europe," Development Working Papers 218, Centro Studi Luca d\'Agliano, University of Milano.
  11. Maurice Kugler & Eric Verhoogen, 2009. "Plants and Imported Inputs: New Facts and an Interpretation," American Economic Review, American Economic Association, vol. 99(2), pages 501-07, May.
  12. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  13. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, vol. 47(2), pages 321-344, April.
  14. Davide Castellani & Francesco Serti & Chiara Tomasi, 2008. "Firms in International Trade: Importers and Exporters Heterogeneity in the Italian Manufacturing Industry," LEM Papers Series 2008/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  15. Kim J. Ruhl, 2008. "The International Elasticity Puzzle," Working Papers 08-30, New York University, Leonard N. Stern School of Business, Department of Economics.
  16. Ananth Ramanarayanan, 2007. "International Trade Dynamics with Intermediate Inputs," 2007 Meeting Papers 722, Society for Economic Dynamics.
  17. László Halpern & Miklós Koren & Adam Szeidl, 2011. "Imported Inputs and Productivity," CeFiG Working Papers 8, Center for Firms in the Global Economy, revised 16 Sep 2011.
  18. Mark J. Gibson & Tim A. Graciano, 2011. "The Decision to Import," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 444-449.
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