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Trade and Domestic Production Networks

Author

Listed:
  • Felix Tintelnot

    (University of Chicago, USA)

  • Ken Kikkawa

    (UBC Saunder School of Business, Canada)

  • Magne Mogstad

    (University of Chicago, USA)

  • Emannuel Dhyne

    (Economics and Research Department, National Bank of Belgium)

Abstract

We use Belgian data with information on domestic firm-to-?rm sales and foreign trade transactions to study how international trade affects ?rm efficiency and real wages. The data allow us to accurately construct the domestic production network of the Belgian economy, revealing several new empirical facts about firms’ indirect exposure to foreign trade through their domestic suppliers and buyers. We use this data to develop and estimate models of domestic production networks and international trade. We ?rst consider a model of trade with an exogenous network structure, which gives analytical solutions for the effects of a change in the price of foreign goods on ?rms’ production costs and real wages. To examine how gains-from-trade calculations change if buyer-supplier links are allowed to form or break in response to changes in the price of foreign goods, we next develop a model of trade with endogenous network formation. We take both models to the data and compare the empirical results to those we obtain using existing approaches. This comparison highlights the relevance of data on and modeling of domestic production networks in studies of international trade.

Suggested Citation

  • Felix Tintelnot & Ken Kikkawa & Magne Mogstad & Emannuel Dhyne, 2018. "Trade and Domestic Production Networks," Working Paper Research 344, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:201809-344
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    More about this item

    Keywords

    Production Networks; Network formation; Indirect imports and exports; Gains from trade;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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    This paper has been announced in the following NEP Reports:

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