IDEAS home Printed from https://ideas.repec.org/p/red/sed012/612.html
   My bibliography  Save this paper

Imported Inputs and the Gains from Trade

Author

Listed:
  • Ananth Ramanarayanan

    (University of Western Ontario)

Abstract

The bulk of international trade takes place in intermediate inputs as opposed to goods for final consumption. Studies of firm-level data show that there is substantial heterogeneity in the share of inputs that are imported by different firms, and that a firm's productivity increases with the quantity and variety of inputs that it imports. This paper develops a model to quantify the contributions of firm-level productivity gains to aggregate productivity and welfare gains from trade. In the model, heterogeneous firms choose the fraction of their inputs to import. Importing a higher fraction of inputs raises firm-level productivity, but requires higher up-front fixed costs. Therefore, firms with different inherent profitability will vary in how much they import and the productivity they gain from doing so. This heterogeneity provides aggregate productivity and welfare gains from trade that would not exist in a world in which firms used identical input bundles. These gains are consistent with data on specific trade liberalization episodes that show large firm-level productivity gains attributed to higher imports of intermediate inputs.

Suggested Citation

  • Ananth Ramanarayanan, 2012. "Imported Inputs and the Gains from Trade," 2012 Meeting Papers 612, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:612
    as

    Download full text from publisher

    File URL: https://economicdynamics.org/meetpapers/2012/paper_612.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, pages 1707-1721.
    2. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
    3. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, pages 1695-1725.
    4. Morris M. Kleiner & Alan B. Krueger, 2013. "Analyzing the Extent and Influence of Occupational Licensing on the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 173-202.
    5. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    6. Gita Gopinath & Brent Neiman, 2014. "Trade Adjustment and Productivity in Large Crises," American Economic Review, American Economic Association, pages 793-831.
    7. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, pages 217-242.
    8. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    9. repec:hhs:iuiwop:430 is not listed on IDEAS
    10. Biscourp, Pierre & Kramarz, Francis, 2007. "Employment, skill structure and international trade: Firm-level evidence for France," Journal of International Economics, Elsevier, pages 22-51.
    11. Gita Gopinath & Brent Neiman, 2014. "Trade Adjustment and Productivity in Large Crises," American Economic Review, American Economic Association, pages 793-831.
    12. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, pages 1707-1721.
    13. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, pages 106-118.
    14. Pierre Biscourp & Francis Kramarz, 2004. "Employment, Skill Structure and International Trade : Firm-level Evidence for France," Working Papers 2004-28, Center for Research in Economics and Statistics.
    15. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, pages 1611-1638.
    16. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, pages 1611-1638.
    17. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1727-1767.
    18. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    19. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, pages 106-118.
    20. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, pages 389-405.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, pages 1-18.
    2. Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, pages 1-18.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed012:612. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.