From Firm-Level Imports to Aggregate Productivity by JaeBin Ahn download in pdf, ePub, iPad
In contrast, when the benefit from imports comes from imperfect substitution, domestic input use is a relatively flat function of tariffs. Motivated by these stylized facts, we develop a model of firms that use differentiated inputs to produce a final good. In each period of our model, firms must pay a fixed cost for each variety they choose to import. This result implies a potential complementarity between importing and the presence of foreign firms. In our second application, we use simulations to explore the productivity implications of tariff policies.
Investigating these directions can improve our understanding of the links between international trade and economic growth. Half of the firms do not import at all. Another force is that losses to domestic input suppliers caused by a tariff cut are partially offset by higher demand for their products due to increased productivity. This is because the set of inputs whose prices are affected is larger and hence firms save more with the tariff cut. Further reading Caselli, Francesco, and Daniel J.
Analysing data for Hungary, this research explores the channels through which imported inputs boost productivity and finds that the positive effects are particularly strong for foreign-owned firms. In turn, the presence of foreign-owned firms matters because they are better at using imports. Our model implies a firm-level production function in which output depends on capital, labour, materials and a term related to the number of imported varieties. In addition, the fixed cost schedule of firms that have been foreign-owned is below that of domestic firms. The productivity effects of importing Our results show that the productivity gains from imported inputs are substantial.
One lesson from this analysis is that the magnitude of redistributive losses due to import substitution depends strongly on both the extent of substitution and the initial level of tariffs. We deal with this identification problem using a structural approach that exploits the product-level nature of the data. More broadly, identifying the specific mechanisms driving the effects of trade policies can help evaluate the impact of these policies in other dimensions.
We find that these costs increase as the number of imported products increases. Because foreign firms have know-how about foreign markets and can access cheap suppliers abroad, they may gain more from spending on imports.
Our analysis also yields estimates of the product-level fixed costs of importing. Based on this idea, we infer the relative magnitude of the two channels by comparing the expenditure share of imports for firms based on differences in the number of imported varieties. We find that combining imperfectly substitutable foreign and domestic varieties is responsible for roughly a half of the productivity gain from imports.
First, there is substantial heterogeneity in their import patterns. Lower import costs are thus a second factor generating higher benefits from importing for foreign-owned firms. For example, when foreign and domestic inputs are close to perfect substitutes, even if the productivity gain from imports is small, the import share should be high.
We continue to estimate large productivity gains with alternative specifications. Larger firms or those that have been foreign-owned are more likely to import. Our model also permits rich heterogeneity across products and firms. These patterns lead to complementarities between different liberalization policies. An important next step in this research agenda is to investigate the underlying mechanisms through which imports increase productivity.
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