Does an Increase in the Cost of Imported Inputs Hurt Exports? Evidence from Firms' Network of Foreign Suppliers

This paper examines the relationship between changes in the cost of imported inputs and export performance using a novel dataset from Argentina which identifies domestic firms' network of foreign suppliers. To guide my empirical strategy, I construct a heterogeneous firm model subject to quality choice and costly to adjust linkages with foreign suppliers. The model predicts the impact of an increase in the cost of imported inputs to be increasing in the adjustments cost of supplier linkages and in the quality of the product exported. I take the model to the data by constructing firm-specific shocks using a shift-share analysis which exploits firms' lagged exposure to foreign suppliers and finely defined import price shifts. Evidence suggests the presence of significant adjustment cost in firms' foreign linkages and strong complementarities between imported inputs and export performance, particularly of high-quality products.