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Distribution capital and the short- and long-run import demand elasticity

  • Crucini, Mario J.

    ()

    (Vanderbilt University)

  • Davis, J. Scott

    ()

    (Federal Reserve Bank of Dallas)

International business-cycle models assume that home and foreign goods are poor substitutes. International trade models assume they are close substitutes. This paper constructs a model where this discrepancy is due to frictions in distribution. Imports need to be combined with a local non-traded input, distribution capital, which is slow to adjust. As a result, imported and domestic goods appear as poor substitutes in the short run. In the long run this non-traded input can be reallocated, and quantities can shift following a change in relative prices. Thus the observed substitutability between home and foreign goods gets larger as time passes.

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File URL: http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0137.pdf
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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 137.

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Length: 46 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:fip:feddgw:137
Note: Published as: Crucini, Mario J. and J. Scott Davis (2016), "Distribution Capital and the Short- and Long-Run Import Demand Elasticity," Journal of International Economics 100: 203-219.
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