Michael Peters (Yale) will present:
"The Gains From Trade in Firm-Based Models of Importing"
at 12:15pm on Tuesday, March 31, 2015 in Buchanan 051/TUCK
Lunch will be served at noon.
Please sign up for a meeting, or dinner at:
https://docs.google.com/spreadsheets/d/1P-LBd109aTgZnLKZOoN_lVHGJQXau3lRixKUTdaP0g4/edit?usp=sharing
If you will be attending the Lunch Seminar please RSVP to Richard Rielly at TUCK so he can order the appropriate amount of food.
Abstract
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 the intensity with which they participate in foreign input markets, results based on aggregate trade models do not apply. In this paper we therefore develop a methodology to quantify the aggregate gains from input trade for a wide class of firm-based models
of importing. We provide a powerful sufficient result: as long domestic and foreign inputs are combined in a CES fashion, the aggregate gains from input trade are fully determined from the observable joint distribution of value added and firms' domestic expenditure
shares in material spending. Because our theory does not impose any restrictions on the underlying heterogeneity across sourcing countries, allows for complementarities between firm productivity and input quality and is consistent with any model of firms'
extensive margin, i.e. of how firms find their foreign input suppliers, any firm-based model of importing will have the exact same implication, as long as it is successfully calibrated to the underlying micro data. In an application, we consider a multi-sector
general equilibrium trade-model with a rich input-output structure and use data for the population of French importing firms. We find that input trade leads to a 27% reduction in consumer prices in the manufacturing sector and a 9% reduction for the full economy.