Input Sourcing in Lopsided Low-income Economies”
Abstract:
Input sourcing i s central to the process of economic development. We first document that, c ontrary to conventional wisdom, the share of inputs originating abroad is a lmost as high in Uganda---a landlocked, low-income country---as in rich, op en economies. The monthly transaction-level data we use, which cover the un iverse of formal, firm-to-firm and firm-to-foreign country trade in the Uga ndan economy, also reveal that indirect imports are sourced from few firms, and via short supply chains. Together these three ``new'' facts motivate a model of input sourcing in a networked economy. Inputs, output quantities, and output prices are determined by firms maximizing profits subject to in put prices and both a domestic and international sourcing network. Decrease s in the cost of imports lead to lower prices for importers' output in the domestic market. We exploit exchange rate shocks and firms' prior direct an d indirect import origins to test the model's predictions. When the relativ e cost of foreign goods decreases, direct importers import more. However, f irst- and higher-order indirect importers import textit{less}, instead buyi ng more foreign content domestically. Pass-on price effects appear to ``mag nify'' network structures that economize on high fixed costs of importing, widening access to foreign content but hindering substitution to direct int ernational trade.
DTSTAMP:20260913T075333Z DTSTART:20221013T143000Z DTEND:20221013T160000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR