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Import Protection as Export Destruction

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Author Info
Hiroyuki Kasahara (University of Western Ontario)
Beverly Lapham (Queen's University)

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Abstract

This paper develops an open economy model with heterogeneous final goods producers who simultaneously choose whether to export their goods and whether to use imported intermediates. The model highlights mechanisms whereby import policies affect aggregate productivity, resource allocation, and industry export activity along both the extensive and intensive margins. Using the theoretical model, we develop and estimate a structural empirical model that incorporates heterogeneity in productivity and shipping costs using Chilean plant-level manufacturing data. The estimated model is consistent with the key features of the data regarding productivity, exporting, and importing. We perform a variety of counterfactual experiments to assess quantitatively the positive and normative effects of barriers to trade in import and export markets. These experiments suggest that there are substantial aggregate productivity and welfare gains due to trade. Furthermore, because of import and export complementarities, policies which inhibit the importation of foreign intermediates can have a large adverse effect on the exportation of final goods.

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Publisher Info
Paper provided by University of Western Ontario, RBC Financial Group Economic Policy Research Institute in its series University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers with number 20062.

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Date of creation: 2006
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Handle: RePEc:uwo:epuwoc:20062

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Postal: RBC Financial Group Economic Policy Research Institute, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85228
Web page: http://economics.uwo.ca/econref/WorkingPapers/

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Related research
Keywords: exporting; importing; firm heterogeneity; aggregate productivity; resource allocation;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
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  1. Jonathan Eaton & Samuel Kortum, 2004. "An Anatomy of International Trade: Evidence from French Firms," 2004 Meeting Papers 802, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  2. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  3. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September. [Downloadable!] (restricted)
  4. repec:att:wimass:19916 is not listed on IDEAS
  5. Brooks, Eileen L., 2006. "Why don't firms export more? Product quality and Colombian plants," Journal of Development Economics, Elsevier, vol. 80(1), pages 160-178, June. [Downloadable!] (restricted)
  6. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February. [Downloadable!] (restricted)
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  7. Hiroyuki Kasahara & Joel Rodrigue, 2005. "Does the Use of Imported Intermediates Increase Productivity? Plant-Level Evidence," University of Western Ontario, RBC Financial Group Economic Policy Research Institute Working Papers 20057, University of Western Ontario, RBC Financial Group Economic Policy Research Institute. [Downloadable!]
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  8. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September. [Downloadable!]
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  9. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. [Downloadable!] (restricted)
  10. J. Bradford Jensen & Andrew Bernard & Peter Schott, 2005. "Importers, Exporters, and Multinationals: A Portrait of Firms in the U.S. that Trade Goods," Working Papers 05-20, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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  11. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  12. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, vol. 94(4), pages 870-895, September. [Downloadable!]
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  15. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco," NBER Working Papers 5715, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March. [Downloadable!]
  17. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December. [Downloadable!] (restricted)
  18. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
  19. Aw, Bee Yan & Chung, Sukkyun & Roberts, Mark J, 2000. "Productivity and Turnover in the Export Market: Micro-level Evidence from the Republic of Korea and Taiwan (China)," World Bank Economic Review, Oxford University Press, vol. 14(1), pages 65-90, January.
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