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Imported Intermediate Inputs and Domestic Product Growth: Evidence from India

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Listed:
  • Pinelopi Goldberg

    (Princeton University)

  • Amit Khandelwal

    (Columbia GSB)

  • Nina Pavcnik

    (Dartmouth College)

  • Petia Topalova

    (IMF)

Abstract

New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from a large developing economy - India - to investigate the relationship between declines in trade costs, the imports of intermediate inputs and domestic firm product scope. We estimate substantial static gains from trade through access to new imported inputs. Accounting for new imported varieties lowers the import price index for intermediate goods on average by an additional 4.7 percent per year relative to conventional gains through lower prices of existing imports. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms, which implies potentially large dynamic gains from trade. This expansion in firms' product scope is driven to a large extent by international trade increasing access of firms to new input varieties rather than by simply making existing imported inputs cheaper. Hence, our findings suggest that an important consequence of the input tariff liberalization was to relax technological constraints through firms? access to new imported inputs that were unavailable prior to the liberalization.

Suggested Citation

  • Pinelopi Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2009. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," Working Papers 1179, Princeton University, Department of Economics, Center for Economic Policy Studies..
  • Handle: RePEc:pri:cepsud:192
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    More about this item

    Keywords

    Intermediate Inputs; Firm Scope; Multi-product Firms; Product Growth; Gains from Variety; Endogenous Growth; Trade Liberalization; India;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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