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Imported Intermediate Goods and Product Innovation : Evidence from India

Author

Listed:
  • Murat Seker
  • Daniel Rodriguez Delgado
  • Mehmet Fatih Ulu

Abstract

In this study, we build a structural model of multi-product firms that illustrates how access to new foreign intermediate goods contributes to product innovation. We establish a stochastic dynamic model of firm evolution allowing firms to be heterogeneous in their efficiency levels. Through introducing importing decision to this dynamic framework, we show that the effects of importing intermediate goods are twofold: i) it increases the revenues per each product created and ii) through the knowledge spillovers obtained from importing, firms become more likely to introduce new varieties. Calibration of the model to Indian data shows that the model can successfully explain the dynamics of product evolution and other moments related to importing and product distribution. Finally the comparison of autarky with trade equilibrium shows how liberalizing trade increases innovation performances and product growth.

Suggested Citation

  • Murat Seker & Daniel Rodriguez Delgado & Mehmet Fatih Ulu, 2015. "Imported Intermediate Goods and Product Innovation : Evidence from India," Working Papers 1537, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1537
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2015/15-37
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    Citations

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    Cited by:

    1. Alessia Lo Turco & Daniela Maggioni, 2015. "Imports, Exports and the Firm Product Scope: Evidence From Turkey," The World Economy, Wiley Blackwell, vol. 38(6), pages 984-1005, June.
    2. Soumyatanu Mukherjee, 2015. "Input Trade Liberalisation and Wage-inequality with Non-traded Goods," Discussion Papers 2015-05, University of Nottingham, CREDIT.
    3. Mukherjee, Soumyatanu, 2016. "Technology, trade and ‘urban poor’ in a general equilibrium model with segmented domestic factor markets," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 400-416.
    4. Soumyatanu Mukherjee, 2016. "Opening the Pandora's Box – Liberalised Input Trade and Wage Inequality with Non-traded Goods and Segmented Unskilled Labour Markets," Discussion Papers 2016-15, University of Nottingham, GEP.
    5. Shepherd, Ben & Stone, Susan, 2012. "Imported intermediates, innovation, and product scope: Firm-level evidence from developing countries," MPRA Paper 41704, University Library of Munich, Germany.
    6. Mukherjee, Soumyatanu & Zafar, Sameen, 2014. "Technological progress with segmented factor markets and welfare implications for the urban poor," MPRA Paper 55297, University Library of Munich, Germany.
    7. Chih-Hai Yang, 2018. "Exports and innovation: the role of heterogeneity in exports," Empirical Economics, Springer, vol. 55(3), pages 1065-1087, November.
    8. Almodóvar, Paloma & Nguyen, Quyen T.K. & Verbeke, Alain, 2021. "An integrative approach to international inbound sources of firm-level innovation," Journal of World Business, Elsevier, vol. 56(3).

    More about this item

    Keywords

    Firm dynamics; Heterogeneous firms; Innovation; Endogenous product scope; Importing intermediate goods; Trade liberalization; Indian manufacturing sector;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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