Input reallocation within multi-product firms

Abstract

This paper studies within-firm input reallocation, resulting from trade protection on imported raw material inputs used in firm-level production. Indian antidumping cases show that firms significantly lower their use of protected inputs from abroad, relative to other inputs in response to import protection. We develop a firm-level input-output correspondence, to identify outputs produced with protected inputs and find significant output losses relative to sales of other outputs. For India this corresponds to an aggregate annual output loss of up to 10% of Indian manufacturing output growth. The paper contributes to the misallocation debate by providing micro-foundations underlying more aggregate misallocations.