Discussion Paper Details

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Title: The Gains from Input Trade with Heterogeneous Importers

Author(s): Joaquin Blaum, Claire Lelarge and Michael Peters

Publication Date: December 2016

Keyword(s): Gains from trade, Imports, productivity and Sufficient statistic approach

Programme Area(s): International Trade and Regional Economics

Abstract: Trade in intermediate inputs allows firms to reduce their costs of production and thus benefits consumers through lower prices of domestically produced goods. The extent to which firms participate in foreign input markets, however, varies substantially. We develop a methodology to measure how consumer prices are affected by input trade in environments that allow for such heterogeneity in import behavior. We provide a theoretical result that holds in a variety of settings: the firm-level data on value added and domestic expenditure shares in material spending are sufficient to compute changes in consumer prices. Approaches that abstract from firm level heterogeneity and rely on aggregate statistics give biased results. In an application to French data, we find that prices of manufacturing products would be 27% higher in the absence of input trade.

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Bibliographic Reference

Blaum, J, Lelarge, C and Peters, M. 2016. 'The Gains from Input Trade with Heterogeneous Importers'. London, Centre for Economic Policy Research.