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Imported inputs, irreversibility, and international trade dynamics

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  • Ramanarayanan, Ananth

Abstract

In aggregate data, international trade volumes adjust slowly in response to relative price changes, an observation at odds with static models. This paper develops a model of trade in intermediate inputs in which heterogeneous producers face irreversibilities in adjusting their importing status. Changes in aggregate imports are accounted for by adjustment within importing plants, through reallocation between non-importers and importers, and through changes in the importing decisions of new and existing plants. When calibrated to Chilean plant-level data, the model shows that irreversibilities are important for generating aggregate and plant-level dynamics of trade flows in line with the data. In response to a permanent trade reform, increased importing at existing plants crowds out entry, raising consumption above its long-run level, and leading to welfare gains larger than a static model would imply.

Suggested Citation

  • Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, vol. 104(C), pages 1-18.
  • Handle: RePEc:eee:inecon:v:104:y:2017:i:c:p:1-18
    DOI: 10.1016/j.jinteco.2016.10.007
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    Cited by:

    1. Burstein, Ariel & Kurz, Christopher & Tesar, Linda, 2008. "Trade, production sharing, and the international transmission of business cycles," Journal of Monetary Economics, Elsevier, vol. 55(4), pages 775-795, May.
    2. Engel, Charles & Wang, Jian, 2011. "International trade in durable goods: Understanding volatility, cyclicality, and elasticities," Journal of International Economics, Elsevier, vol. 83(1), pages 37-52, January.
    3. Gibson, Mark & Graciano, Tim, 2011. "Trade Models with Heterogeneous Firms: What About Importing?," MPRA Paper 33048, University Library of Munich, Germany.
    4. Pol Antràs & Robert W. Staiger, 2012. "Offshoring and the Role of Trade Agreements," American Economic Review, American Economic Association, vol. 102(7), pages 3140-3183, December.
    5. Gust, Christopher & Leduc, Sylvain & Sheets, Nathan, 2009. "The adjustment of global external balances: Does partial exchange-rate pass-through to trade prices matter?," Journal of International Economics, Elsevier, vol. 79(2), pages 173-185, November.
    6. Gibson, Mark J. & Graciano, Tim A., 2012. "Trade Engagement and Producer Performance," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124833, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Trade in intermediate goods; Plant-level heterogeneity; Dynamics of trade liberalization;

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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