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

Listed author(s):
  • Joaquin Blaum

    (Brown University)

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.

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Paper provided by Society for Economic Dynamics in its series 2016 Meeting Papers with number 782.

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Date of creation: 2016
Handle: RePEc:red:sed016:782
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  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, 09.
  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.
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