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The Connection between Imported Inputs and Exports: The Importance of Strategic Interdependence

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  • Arijit Mukherjee

    (Industrial Economics, Nottingham University Business School, Wollaton Rd, Lenton, Nottingham NG8 1BB, UK)

  • Yao Liu

    (College of International Economics and Trade, Dongbei University of Finance and Economics, Dalian 116025, China)

Abstract

Ignoring strategic interactions among final goods producers, the extant theoretical literature shows that lower costs of imported inputs increase the exports of the final goods using those inputs. Hence, it does not explain the empirically relevant positive relationship between the costs of imported inputs and the export of the final goods. We use a simple Cournot duopoly (i.e., duopoly quantity competition) with homogeneous products to show that if the exporters differ in input coefficients, lower costs of imported inputs may increase or decrease the exports of the final goods. Thus, we argue that strategic interdependence among the exporters can be an important factor for the positive relationship between lower costs of imported inputs and the export of the final goods. We further show that a lower cost of imported inputs may reduce the consumer surplus, total profits of the exporters, and world welfare. We also show the implications of a Bertrand duopoly (i.e., duopoly price competition) with horizontal product differentiation for our analysis.

Suggested Citation

  • Arijit Mukherjee & Yao Liu, 2023. "The Connection between Imported Inputs and Exports: The Importance of Strategic Interdependence," Games, MDPI, vol. 14(1), pages 1-14, January.
  • Handle: RePEc:gam:jgames:v:14:y:2023:i:1:p:6-:d:1030030
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    References listed on IDEAS

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    4. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
    5. J. Peter Neary, 2010. "Two and a Half Theories of Trade†," The World Economy, Wiley Blackwell, vol. 33(1), pages 1-19, January.
    6. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, May.
    7. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1727-1767.
    8. 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.
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    Keywords

    export; import; productivity;
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