Import Protection As Export Destruction

This paper develops an open economy model with heterogeneousfinal goods producers who simultaneously choose whether to export theirgoods and whether to use imported intermediates.The model highlights mechanisms whereby import policies affectaggregate productivity, resource allocation, and industry export activityalong both the extensive and intensive margins. Using the theoretical model,we develop and estimate a structural empirical model that incorporatesheterogeneity in productivity and shipping costs using Chilean plant-levelmanufacturing data. The estimated model is consistent with the key featuresof the data regarding productivity, exporting, and importing. We perform avariety of counterfactual experiments to assess quantitatively the positive andnormative effects of barriers to trade in import and export markets. Theseexperiments suggest that there are substantial aggregate productivity andwelfare gains due to trade. Furthermore, because of import and exportcomplementarities, policies which inhibit the importation of foreignintermediates can have a large adverse effect on the exportation of finalgoods.