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Trade Adjustment and Productivity in Large Crises

  • Gita Gopinath
  • Brent Neiman

We empirically characterize the mechanics of trade adjustment during the Argentine crisis. Though imports collapsed by 70 percent from 2000-2002, the entry and exit of firms or products at the country level played a small role. The within-firm churning of imported inputs, however, played a sizeable role. We build a model of trade in intermediate inputs with heterogeneous firms, fixed import costs, and roundabout production. Import demand is non-homothetic and the implications of an import price shock depend on the full distribution of firm-level adjustments. An import price shock generates a significant decline in productivity.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 3 (March)
Pages: 793-831

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:3:p:793-831
Note: DOI: 10.1257/aer.104.3.793
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