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Intermediate Inputs and the Export Gravity Equation

Author

Listed:
  • Antonio Navas

    () (Department of Economics, The University of Sheffield)

  • Francesco Serti

    (Departmento de Fundamentos del Analisis Economico, University of Alicante)

  • Chiara Tomasi

    (University of Trento, Italy, and LEM, Scuola Superiore Sant'Anna, Italy)

Abstract

This paper introduces imports in intermediate inputs into a standard heterogeneous firms model of trade with asymmetric countries. The model highlights how imports from a specific country affects a firm's decision to export to that country (the extensive margin), as well as its export value (the intensive margin). The model shows that the effect of both distance and market size on the export margins is magnified when imports in intermediates are accounted for. Indeed, to the extent that exporting firms also use foreign intermediate inputs, the impact of traditional gravity forces on exports also depends on import activities. Exploiting data on product-destination level transactions of a large panel of Italian firms, the paper provides empirical evidence in support of the predictions of the model. Controlling for firm-level time-varying unobserved heterogeneity and for the potential endogeneity of firm-level import decisions, the empirical analyses confirm that the estimated elasticities of exports to distance and market size depend on firms' importing activities.

Suggested Citation

  • Antonio Navas & Francesco Serti & Chiara Tomasi, 2013. "Intermediate Inputs and the Export Gravity Equation," Working Papers 2013014, The University of Sheffield, Department of Economics.
  • Handle: RePEc:shf:wpaper:2013014
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    File URL: http://www.shef.ac.uk/economics/research/serps/articles/2013_014.html
    File Function: First version, 2013
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    Citations

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    Cited by:

    1. Díaz-Mora, Carmen & Córcoles, David & Gandoy, Rosario, 2015. "Exit from exporting: Does being a two-way trader matter?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-27.
    2. Bernini, Michele & Tomasi, Chiara, 2015. "Exchange rate pass-through and product heterogeneity: Does quality matter on the import side?," European Economic Review, Elsevier, vol. 77(C), pages 117-138.
    3. Díaz-Mora, Carmen & Córcoles, David & Gandoy, Rosario, 2014. "Exit from Exporting: Does Engagement in Transnational Networks Matter?," MPRA Paper 57642, University Library of Munich, Germany.
    4. Carmen Díaz-Mora & Rosario Gandoy & Belén González-Díaz, 2018. "Looking into global value chains: influence of foreign services on export performance," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(4), pages 785-814, November.

    More about this item

    Keywords

    imports; exports; firm heterogeneity; gravity equation;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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