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The Gains from Input Trade with Heterogeneous Importers

Author

Listed:
  • J. Blaum
  • C. Lelarge
  • M. Peters
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.

Suggested Citation

  • J. Blaum & C. Lelarge & M. Peters, 2016. "The Gains from Input Trade with Heterogeneous Importers," Working papers 612, Banque de France.
    • Handle: RePEc:bfr:banfra:612
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Euro area countries; natural rate of interest; common monetary policy; fragmentation;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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