Trade Models with Heterogeneous Firms: What About Importing? (original) (raw)
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Using imported intermediate goods: Selection and technology effects
Review of International Economics, 2017
Producers that use imported intermediate goods tend to be much larger and more productive than others. Some of this is due to a selection effect: the most productive producers self-select into importing because only they can overcome the fixed costs of developing trade relationships with foreign input suppliers. Some of this is due to a technology effect: any given producer would have higher variable profits from operating the technology using imported intermediate goods. To account for the roles of these theoretical mechanisms, we develop a simple model of a competitive small open economy in which heterogeneous firms endogenously decide whether to use imported intermediate goods. The technology that uses imported intermediate goods is superior but requires a higher fixed cost of operating. The calibrated model captures the large performance advantage of importers and quantifies the selection and technology effects.
Imported Intermediate Inputs, Export Prices, and Trade Liberalization
This paper examines how trade liberalization affects unit value export prices via firms' import decisions on input quality and the number of imported varieties. The paper extends Melitz's (2003) model of trade with heterogeneous firms by introducing endogenous quality and endogenous number of imported varieties. The key predictions are as follows. First, an increase in productivity or a reduction in import tariff induces firms to spend more on each import variety, and choose to import higher-quality inputs (the "quality effect"). Second, higherproductivity firms or firms facing lower import tariff tend to import more varieties (the "variety effect"). Third, more importantly, due to the quality effect and the variety effect, there is a clear pattern of "quality ladder": firms importing more varieties or with higher productivity set higher export prices; trade liberalization further raises export prices set by firms. However, if one adopts the alternative assumption that quality is exogenous across firms, then completely opposite results would be expected: import tariff reduction would decrease export prices, and firms importing more varieties or with higher productivity set lower export prices. We test two competing theories using the merged Chinese firm-product trade data and the tariff data at the HS8 level by computing firm specific tariff. Our empirical results strongly support all the predictions of the endogenous-quality model, validate the mechanisms of the quality effect and the variety effect, and therefore confirm the pattern of the "quality ladder". Moreover, we find evidence to support the exogenous-quality model using quality-adjusted price estimates and the subsample of the goods with more homogeneity of quality.
Does the use of imported intermediates increase productivity? Plant-level evidence
Journal of Development Economics, 2008
While addressing the issue of simultaneity of a productivity shock and decisions to import intermediates, we estimate the impact of the use of foreign intermediates on plants' productivity using plant-level Chilean manufacturing panel data. We found that the switching from being a non-importer to being an importer of foreign intermediates can improve productivity by 3.4 to 22.5 percent.
Productivity and the decision to import and export: Theory and evidence
Journal of International Economics, 2013
This paper develops an open economy model with heterogeneous final goods producers who simultaneously choose whether to export their goods and whether to use imported intermediates. The model highlights mechanisms whereby import policies affect aggregate productivity, resource allocation, and industry export activity along both the extensive and intensive margins. Using the theoretical model, we develop and estimate a structural empirical model that incorporates heterogeneity in productivity and shipping costs using Chilean plantlevel data for a set of manufacturing industries. The estimated model is consistent with the key features of the data regarding productivity, exporting, and importing. We perform a variety of counterfactual experiments to assess quantitatively the positive and normative effects of barriers to trade in import and export markets. These experiments suggest that there are substantial aggregate productivity and welfare gains due to trade. Furthermore, because of import and export complementarities, policies which inhibit the importation of foreign intermediates can have a large adverse effect on the exportation of final goods.
Revisiting the role of imported intermediates on productivity : a firm-level analysis for Uruguay
2019
International trade is considered a vehicle for technology diffusion, which in turn can induce productivity growth. Particularly, imports may give domestic firms access to a larger variety and/or better quality of intermediate or capital inputs in which new technologies are embodied. However, the lack of sufficiently skilled labor, an issue especially relevant for small developing countries, may prevent firms from taking advantage of these technologies. Using a panel of Uruguayan manufacturing firms for the period 1997-2008, we explore the impact of imported inputs on firms’ productivity and evaluate whether the effect is mediated by the firm’s absorptive capacity, proxied by the proportion of skilled labor. We use two alternative approaches. Firstly, we apply a two-stage approach by first estimating firms’ productivity and then using impact evaluation techniques to analyze causality between imported inputs and productivity. Secondly, we use a direct approach, estimating TFP with im...
How do imports affect firm productivity? To answer this question, we estimate a structural model of importers using a panel of Hungarian firms. In our model with heterogenous goods, imported inputs improve productivity because (1) they are imperfect substitutes of domestic inputs; and (2) they have higher quality. This model yields a production function where output depends both on conventional factors and the number of product varieties imported. We estimate this import-augmented production function with the Olley and Pakes (1996) procedure, and find that increasing the fraction of product varieties imported from 0 to 100 percent leads to a productivity gain of 14 percent. About two thirds of this gain can be attributed to imperfect substitution, while the remainder is due to the higher quality of imports. We also compute the effects of a hypothetical tariff cut, and find that for small firms, it improves productivity through importing more product varieties, while for large firms it improves productivity through increasing existing imports.
American Economic Association Plants and Productivity in International Trade
2008
We reconcile trade theory with plant-level export behavior, extending the Ricardian model to accommodate many countries, geographic barriers, and imperfect competition. Our model captures qualitatively basic facts about U.S. plants: (i) productivity dispersion, (ii) higher productivity among exporters, (iii) the small fraction who export, (iv) the small fraction earned from exports among exporting plants, and (v) the size advantage of exporters. Fitting the model to bilateral trade among the United States and 46 major trade partners, we examine the impact of globalization and dollar appreciation on productivity, plant entry and exit, and labor turnover in U.S. manufacturing. (JEL F11, F17, 033) A new empirical literature has emerged that examines international trade at the level of individual producers. Bernard and Jensen (1995, 1999a), Sofronis Clerides et al. (1998), and Bee Yan Aw et al. (2000), among others, have uncovered stylized facts about the behavior and relative performance of exporting firms and plants which hold consistently across a number of countries. Most strikingly, exporters are in the minority; they tend to be more productive and larger, yet they usually export only a small fraction of their output. This heterogeneity of performance diminishes only mod
Imported inputs and productivity
2009
Abstract We estimate a model of importers in Hungarian micro data and conduct counterfactual policy analysis to investigate the effect of imports on productivity. We find that importing all foreign varieties would increase firm productivity by 12 percent, almost two-fifths of which is due to imperfect substitution between foreign and domestic goods. The effectiveness of import use is higher for foreign firms and increases when a firm becomes foreign-owned.
Improved Access to Foreign Markets Raises Plant-Level Productivity… for Some Plants *
Quarterly Journal of Economics, 2010
We weigh into the debate about whether rising productivity is ever a consequence rather than a cause of exporting. Exporting and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such investments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz . We model this econometrically using a heterogeneous response model. Unique 'plant-specific' tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labour productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labour productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our complementarity theory.