Estimating U.S. import penetration in sub-national regions

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ABSTRACT We develop an industry-specific model of import demand that takes into account the costs associated with international transport from the exporting country to the port of entry and also the costs associated with domestic transport from the port of entry to the consumer. The costs of domestic transport are usually not included in empirical models of international trade. We estimate these costs using an econometric specification derived from the structural model. We apply the model to 2013–7 import data for the U.S. electrical equipment industry. We use the structural equations and the econometric estimates of the parameter values to impute the flow of imports to U.S. consumers in five regions that cover the lower 48 states, and then we calculate industry-specific import penetration rates for each region. Finally, we simulate the exposure of consumers and industry employment in each region to changes in tariffs on U.S. imports from different countries.