NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Gains from Input Trade in Firm-Based Models of Importing

Joaquin Blaum, Claire LeLarge, Michael Peters

NBER Working Paper No. 21504
Issued in August 2015
NBER Program(s):International Trade and Investment

Trade in intermediate inputs allows firms to lower their costs of production by using better, cheaper, or novel inputs from abroad. Quantifying the aggregate impact of input trade, however, is challenging. As importing firms differ markedly in how much they buy in foreign markets, results based on aggregate models do not apply. We develop a methodology to quantify the gains from input trade for a class of firm-based models of importing. We derive a sufficiency result: the change in consumer prices induced by input trade is fully determined from the joint distribution of value added and domestic expenditure shares in material spending across firms. We provide a simple formula that can be readily evaluated given the micro-data. In an application to French data, we find that consumer prices of manufacturing products would be 27% higher in the absence of input trade.

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Document Object Identifier (DOI): 10.3386/w21504

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