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The Gains from Input Trade in Firm-Based Models of Importing

Author

Listed:
  • Joaquin Blaum

    (Brown University)

Abstract

Trade in intermediate inputs allows firms to reduce their costs of production by using better, cheaper, or novel inputs from abroad. The extent to which firms participate in foreign input markets, however, varies substantially. We show that accounting for this heterogeneity in import behavior is important to quantify the effect of input trade on consumer prices. We provide a theoretical result that holds in a wide class of models of importing: the firm-level data on value added and domestic expenditure shares in material spending is sufficient to compute the change in consumer prices relative to input autarky. In an application to French data, we find that consumer prices of manufacturing products would be 27% higher in the absence of input trade. Relying on aggregate data leads to substantially biased results. We then extend the analysis to study counterfactuals other than autarky and the measurement of welfare. We find that the observable micro data on value added and domestic shares contains crucial information about the effects of the shocks.

Suggested Citation

  • Joaquin Blaum, 2016. "The Gains from Input Trade in Firm-Based Models of Importing," 2016 Meeting Papers 782, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:782
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    References listed on IDEAS

    as
    1. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2011. "An Anatomy of International Trade: Evidence From French Firms," Econometrica, Econometric Society, vol. 79(5), pages 1453-1498, September.
    2. Ana Cecília Fieler & Marcela Eslava & Daniel Xu, 2014. "Trade, Skills, and Quality Upgrading: A Theory with Evidence from Colombia," NBER Working Papers 19992, National Bureau of Economic Research, Inc.
    3. Ezra Oberfield & Devesh Raval, 2012. "Micro data and macro technology," Working Paper Series WP-2012-11, Federal Reserve Bank of Chicago.
    4. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
    5. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Laura Alfaro & Alejandro Cuñat & Harald Fadinger & Yanping Liu, 2017. "The Real Exchange Rate, Innovation and Asymmetries and Hysteresis," Harvard Business School Working Papers 18-044, Harvard Business School, revised May 2018.
    2. Martin Beraja, 2017. "Counterfactual Equivalence in Macroeconomics," 2017 Meeting Papers 1400, Society for Economic Dynamics.
    3. Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, vol. 104(C), pages 1-18.
    4. repec:eee:inecon:v:109:y:2017:i:c:p:31-42 is not listed on IDEAS
    5. Spray, J., 2017. "Reorganise, Replace or Expand? The role of the supply-chain in first-time exporting," Cambridge Working Papers in Economics 1741, Faculty of Economics, University of Cambridge.
    6. Taiji Furusawa & Tomohiko Inui & Keiko Ito & Heiwai Tang, 2017. "Global Sourcing and Domestic Production Networks," CESifo Working Paper Series 6658, CESifo Group Munich.
    7. Sara Formai & Filippo Vergara Caffarelli, 2016. "Quantifying the productivity effects of global sourcing," Temi di discussione (Economic working papers) 1075, Bank of Italy, Economic Research and International Relations Area.
    8. Jonathan EATON & Samuel KORTUM & Francis KRAMARZ, 2016. "Firm-to-Firm Trade: Imports, exports, and the labor market," Discussion papers 16048, Research Institute of Economy, Trade and Industry (RIETI).
    9. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2016. "Multinationals, Offshoring and the Decline of U.S. Manufacturing," 2016 Meeting Papers 584, Society for Economic Dynamics.
    10. Mary Amiti & Mi Dai & Robert C. Feenstra & John Romalis, 2017. "How Did China’s WTO Entry Benefit U.S. Consumers?," NBER Working Papers 23487, National Bureau of Economic Research, Inc.
    11. repec:eee:eecrev:v:101:y:2018:i:c:p:479-504 is not listed on IDEAS
    12. Amiti, Mary & Dai, Mi & Feenstra, Robert C. & Romalis, John, 2017. "How did China’s WTO entry benefit U.S. prices?," Staff Reports 817, Federal Reserve Bank of New York, revised 01 Jul 2018.
    13. Ildikó Magyari, 2017. "Firm Reorganization, Chinese Imports, and US Manufacturing Employment," Working Papers 17-58, Center for Economic Studies, U.S. Census Bureau.
    14. Alfaro, Laura & Cunat, Alejandro & Fadinger, Harald & Yanping, Liu, 2017. "The real exchange rate, innovation and productivity," Working Papers 17-04, University of Mannheim, Department of Economics.
    15. J. Blaum & c. Lelarge & M. Peters, 2017. "Firm Size and the Intensive Margin of Import Demand," Working papers 657, Banque de France.
    16. repec:bla:jageco:v:68:y:2017:i:1:p:280-300 is not listed on IDEAS
    17. Federico Esposito, 2016. "Risk Diversification and International Trade," 2016 Meeting Papers 302, Society for Economic Dynamics.
    18. Shen, Leilei & Silva, Peri, 2018. "Value-added exports and U.S. local labor markets: Does China really matter?," European Economic Review, Elsevier, vol. 101(C), pages 479-504.
    19. László Halpern & Miklós Koren & Adam Szeidl, 2015. "Imported Inputs and Productivity," American Economic Review, American Economic Association, vol. 105(12), pages 3660-3703, December.
    20. Peter Schott & Justin Pierce & Georg Schaur & Sebastian Heise, 2017. "Trade Policy Uncertainty and the Structure of Supply Chains," 2017 Meeting Papers 788, Society for Economic Dynamics.
    21. Dominick Bartelme & Yuriy Gorodnichenko, 2015. "Linkages and Economic Development," NBER Working Papers 21251, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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