The Gains from Input Trade in Firm- Based Models of Importing
Abstr
act:
Trade in intermediate inputs allows firms to reduce their costs
of production by using better, cheaper, or novel inputs from abroad. The ex
tent to which firms participate in foreign input markets, however, varies s
ubstantially. We show that accounting for this heterogeneity in import beha
vior 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 im
porting: the firm-level data on value added and domestic expenditure shares
in material spending is sufficient to compute the change in consumer price
s relative to input autarky. In an application to French data, we find that
consumer prices of manufacturing products would be 27% higher in the absen
ce of input trade. Relying on aggregate data leads to substantially biased
results. We then extend the analysis to study counterfactuals other than au
tarky and the measurement of welfare. We find that the observable micro dat
a on value added and domestic shares contains crucial information about the
effects of the shocks.