Intermediate Inputs Research Articles

Relationship of Payment Statistics and Sector-Wise Gross Value Added in the Indian Economy: A Regression Analysis Approach

Purpose: To explore the impact of payment statistics on sector-wise gross value added (GVA) in the Indian economy. Theoretical framework: Payment statistics are a measure of the volume and value of payments made in an economy. They are an important indicator of economic activity, as they reflect the flow of goods and services between buyers and sellers. GVA is a measure of the total value of goods and services produced in an economy, after subtracting the cost of intermediate inputs. Design/Methodology/Approach: The study uses regression analysis to examine the relationship between payment statistics and sector-wise GVA in India from 2011 to 2022. Findings: The study finds that payment statistics exhibit a significant influence on major sector-wise GVA during the specified period. Originality/Value: The study contributes to the literature by providing empirical evidence on the relationship between payment statistics and sector-wise GVA in India.

Impact of ICT development on bilateral intermediate input trade: Considering cross-country heterogeneity

ABSTRACT This study investigates the impact of information and communication technology (ICT) on bilateral trade flows, focusing on intermediate inputs across 161 countries from 1990 to 2016. We utilize the Eora global supply chain input-output tables to distinguish trade in intermediate inputs from gross trade. By adopting the Poisson pseudo-maximum likelihood (PPML) estimator, we find that ICT promotes bilateral and intermediate input trade by lowering trade costs. Notably, the similarity in ICT development between home and host countries is positively associated with bilateral intermediate input trade. Furthermore, the positive effects of ICT on bilateral intermediate input trade are stronger in labor-abundant countries than in capital-abundant countries. We also find that the positive relationship becomes more significant in low-income countries than in high-income ones. Labor-abundant and low-income countries are expected to experience an increase in intermediate input trade through ICT development.

Impact of industrial robot applications on global value chain participation of China manufacturing industry: Mediation effect based on product upgrading

Promoting the application of industrial robot (IR) is an important module for China to build core competitiveness, and it is also the main grasp of global value chain participation (GVCP). Using China manufacturing industry panel data from 2006–2014, working from the perspective of product upgrading, this paper empirically analyzes the impact of IR applications on GVCP. The empirical results show that IR applications weaken China’ incentives to participate in global value chains (GVCs); this weakening effect is reflected in both forward and backward participation in GVCs. On the one hand, the mediation effect test results indicate that the product upgrading effect brought about by IR applications can help China achieves the import substitution of intermediate inputs and uses local intermediate inputs to produce exports. These steps would reduce the backward participation in GVCs. On the other hand, the localization of manufacturing can result in China losing the opportunity to export intermediate inputs to other economies, thus reducing the forward participation of GVCs. Of course, due to sample limitations, the research conclusions of this article are only applicable to interpreting the Chinese economy.

Digital revolution: Does industrial chain digitalization lead the energy-saving wave?

The industrial chain digitization (ICD) is a crucial driving force for improving energy efficiency and achieving sustainable development. Based on China’s 2002–2017 input–output table, this paper used the structural path analysis method to construct the ICD panel data. We employed the two-way fixed effects model to explore the impact of ICD on demand-side energy intensity. The research findings are as follows: (1) The ICD can significantly reduce energy intensity. The results were robust after some endogeneity tests. (2) There is heterogeneity between digital manufacturing and service inputs. China’s ICD mainly relies on the automation and intelligence of production equipment to achieve energy-saving. (3) The sectoral digital intermediate input, the intelligence level, and the industrial chain energy flow have a positive moderating effect on the energy-saving effect of ICD. (4) The ICD can reduce energy intensity by improving labor productivity, strengthening the industrial chain synergistic division ability, accelerating intelligent transformation, and promoting technological innovation. This paper provided targeted policy recommendations to promote the ICD level and achieve energy-saving and emission-reduction targets based on the research results.

Import competition and sustainable development of global value chains: Evidence from China

AbstractAs the largest developing country and the second largest importer, China provides meaningful research on import competition and the global value chain (GVC). This article uses theoretical models and empirical tests to explore whether and how import competition affects the sustainable development of Chinese firms' GVCs. Moreover, we utilize China's entry into the WTO as a quasi‐natural experiment for import competition to further test the robustness of our findings. Ultimately, we find that import competition reduces the sustainable development of GVCs by decreasing the quality of imported intermediate inputs, which inhibits technology spillover, and by increasing the substitution of foreign inputs for domestic materials. Heterogeneous analyses show that import competition negatively affects ordinary trade and mixed trade firms while having no significant impact on processing trade firms. Moreover, this negative effect is especially significant for firms in eastern and central regions.

Public Investment in a Production Network: Aggregate and Sectoral Implications

Abstract Aggregate and sectoral effects of public investment crucially depend on the interaction between the output elasticity to public capital and intermediate inputs. We uncover this fact through the lens of a New Keynesian production network. This setting doubles the socially optimal amount of public capital relative to the one-sector model without intermediate inputs, leading to a substantial amplification of the public-investment multiplier. We also document novel sectoral implications of public investment. Although public investment is concentrated in far fewer sectors than public consumption, its effects are relatively more evenly distributed across industries. We validate this model implication in the data.

A second-best argument for low optimal tariffs on intermediate inputs

We derive a new formula for the optimal uniform tariff in a small-country, heterogeneous-firm model with roundabout production and a nontraded good. Tariffs are applied on imported intermediate inputs. First-best policy requires that markups on domestic intermediate inputs are offset by subsidies. In a second-best setting where such subsidies are not used, roundabout production and the monopoly distortion in the traded sector create strong incentives to lower the optimal tariff on imported inputs. In a quantitative version of our two-sector small open economy, we find that the optimal tariff is lowered under nearly all parameter values considered, and can be negative.

Global value chains, productivity and markup: Evidence from India

In this study, we use large-scale firm-product-level panel data of Indian manufacturing firms to examine the link between global value chain (GVC) participation and firm performance. Using rich product-level information on prices and quantity, we measure firm-product level markup, productivity and examine the impact of GVC participation on these two measures of firm performance. We correct for self-selection induced endogeneity using propensity score matching (PSM) to explore the GVC – productivity/markup nexus. We provide evidence that firms participating in GVCs experience productivity premium. Moreover, the empirical analysis also discerns that GVCs firms observe fall in markups. In this regard, we decompose firms change in markup to price and cost channels and show that the fall in markup is predominantly driven by rising marginal costs of the firm. This can be attributed to the increasing dependence on imported intermediate inputs, which induces rise in costs associated with production in GVCs. We also examine the aforementioned dynamics taking into account firm heterogeneity in terms of size and technology intensity of industries. Our results are robust to alternate measures of GVC, and alternate matching procedures.

Estimating the Distributional Burden of General Sales Tax in Pakistan

Pakistan’s tax regime heavily relies on indirect taxes, constituting 60 percent of total tax receipts, of which general sales tax (GST) is a major component. This paper assessed who bears how much burden of GST levied on domestic production and sales by examining its incidence and distributional burden across household deciles for the year 2018-19. The paper maintained that even if the final product is exempted from tax, it incorporates the impact of taxes levied on intermediate inputs it uses. In order to trace these cascading effects of taxes, the paper used an input-output model-based approach. The results showed that the overall incidence of GST was, on average, 6.7 percent. The distribution of incidence was found to be regressive across the board as well as in rural and urban areas. Analysis by commodity groups indicated that basic food items bore the highest incidence and displayed the highest extent of regressivity across all deciles. This suggests that the poorer segments of society bear a relatively greater burden of GST in Pakistan.

Unveiling the Myth of Import Substitution Policy in Pakistan

Due to the import substitution policy, domestic firms and end users have to pay a higher price for the imported intermediate inputs, and final consumption items compared to the international market prices. The data show that the use of imported intermediate inputs has increased in agriculture, manufacturing, and services sectors over the last two decades in Pakistan. Clearly, the import substitution policy is unable to meet its primary objectives of substituting expensive imported items for cheaper domestic intermediate and final consumption items rather it is leading toward an unsustainable economic environment for domestic and international trade.

Unveiling the Myth of Import Substitution Policy in Pakistan

Due to the import substitution policy, domestic firms and end users have to pay a higher price for the imported intermediate inputs, and final consumption items compared to the international market prices. The data show that the use of imported intermediate inputs has increased in agriculture, manufacturing, and services sectors over the last two decades in Pakistan. Clearly, the import substitution policy is unable to meet its primary objectives of substituting expensive imported items for cheaper domestic intermediate and final consumption items rather it is leading toward an unsustainable economic environment for domestic and international trade.

Complementarities among types of education in affecting firms' productivity

AbstractThis article uses Swiss firm‐level panel data to show that complementarities among workers with different types of education affect firms' productivity. We consider workers with four different types of education: no post‐secondary education, upper secondary vocational education and training (VET), tertiary professional education, and tertiary academic education. To account for possible endogeneity, we exploit within‐firm variation and employ a structural estimation technique that uses intermediate inputs as a proxy for unobserved productivity shocks. Our results suggest that workers with an upper secondary VET education are complementary to workers with a tertiary academic education, while workers with no post‐secondary education are complementary to workers with a tertiary professional education. Altogether, our findings highlight the importance of vertical and horizontal education diversity within firms.

Government policies and manufacturing production during the COVID-19 pandemic

This paper evaluates the impact of government support and containment measures on the manufacturing production cycle (MPC) of 39 countries during the COVID-19 pandemic. To the best of our knowledge, the effects of these variables on the MPC have not been studied. To obtain reliable evidence, we resort to two complementary econometric techniques: the Arellano-Bond Generalized Method of Moments (GMMs) and the Arellano-Bover GMMs. The evidence is consistent across econometric methods in showing that: 1) Closure and containment measures have been recessionary, 2) Income support measures and interest rate cuts have been effective in raising manufacturing production, and 3) Real exchange rate depreciations do not stimulate (and could even discourage) manufacturing production, presumably because they make imported intermediate inputs more expensive. Therefore, raising consumption through higher income and investment through lower interest rates can alleviate the recessionary effects of closure and containment policies, whereas depreciating the currency may not be effective to boost manufacturing production amid falling world trade and disrupted global supply chains, which could interact with a weaker currency to make imported intermediate inputs even more costly.

The least-cost abatement measure of carbon emissions for China's glass manufacturing industry based on the marginal abatement costs

We estimate the marginal abatement cost (MAC) curve of carbon emissions for China's glass production firms through combining the top-down economic method and the bottom-up engineering method. An economic model based on parametric directional distance function is first used to estimate the least MAC, and then, from the perspective of the engineering method, the emission abatement level is further incorporated to identify the MAC curve of carbon emissions. In addition, this study takes multiple abatement measures into account by either downscaling the production activity or enlarging the inputs use. The results show that: (i) The average MAC of carbon emissions for China's glass production firms ranges from 552 to 6571 CNY/t CO2 operating in 2008–2015. (ii) The firms with higher main business income are usually associated with lower MAC of carbon emissions. (iii) Increasing the intermediate input is considered as the least-cost abatement measure for the large and medium sized firms, while downscaling the production activity is the optimal one for small sized firms. (iv) The regional carbon emission permit trading scheme would help China's glass manufacturing industry save 42–62% abatement costs for achieving the emission reduction targets of 5–30%, while nationwide scheme would help save additional 8% abatement costs.

Text-Based Measure of Supply Chain Risk Exposure

Using textual analysis techniques, including seeded word embedding and bag-of-words-based content analysis, I develop a firm-level measure of supply chain risk exposure from a novel source of unstructured data—the discussion between managers and equity analysts on supply chain-related topics during firms’ quarterly earnings conference calls. I validate the measure by showing that (1) the measure exhibits intuitive variations over time and across firms, successfully capturing both routine and systematic supply chain risk events; and (2) the measure is about risk exposure, as it significantly correlates with realized and options-implied stock return volatility, even after controlling for well-known aggregate risk measures. I then demonstrate that the measure is specifically indicative of the supply chain component of risk exposure. (3) Consistent with theoretical predictions, firms facing higher supply chain risks have higher inventory buffers, particularly in raw materials and intermediate inputs, increased cash holdings in lieu of investments, and significantly lower trade credit received from suppliers. Moreover, (4) during unexpected risk episodes, such as the Tohoku earthquake, firms with higher ex ante risk exposure have worse operating and financial performance. These results indicate that the text-based measure provides a credible quantification of firm-level exposure to supply chain risks and can thus be reliably utilized as outcome or explanatory variables in empirical supply chain research. This paper was accepted by Jeannette Song, operations management. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4927 .

South-South vs North-South value chain integration and value addition in Sub-Saharan Africa

China is now Africa's largest trading partner, having surpassed the United States (US) in 2008. This is a vital development because trade facilitates capital injection as well as knowledge and technology spillovers in developing economies like Africa. However, the China-Africa trade has been extensively criticized, with China alleged of exploiting Africa's natural resources while dumping low-quality products on the continent. The dumping narrative is worth investigating given that the trade balance has favoured China since 2012, and the mix of China's exports to Africa remains contentious. This study argues that, if the narrative is exaggerated, Africa’s backward value chain integration with China must contribute decisively to manufacturing output, industrial jobs, and/or total factor productivity (TFP), signifying a fair representation of intermediate inputs in China's exports to Africa, which the continent assembles for its export markets. The investigation is conducted in comparison to the US, as Africa’s traditional trading partner, based on evidence from 23 Sub-Saharan African countries over the period 2005–2018. Our two-step system GMM estimates indicate that the dumping narrative cannot be ruled out, and thus African governments must take appropriate action to stop the practice. Backward value chain integration with the US, on the other hand, boosts manufacturing output, indicating that the US has fared relatively well in maintaining its shares of foreign value added (FVA) in Sub-Saharan Africa.

The economic costs of trade sanctions: Evidence from North Korea

This paper investigates the economic costs of the recent United Nations sanctions on North Korea. Exploiting a novel data set on North Korean firms, we construct measures of regional exposure to export and intermediate input sanctions and show that trade sanctions cause sharp declines in local nighttime luminosity. Additional analysis of newly available product-level price data reveals that import sanctions led to significant increases in market prices. We then estimate a quantitative spatial equilibrium model using cross-region variations. The model implies that the sanctions reduced the country's manufacturing output by 12.9% and real income by 15.3%. We further quantify the potential impact of alternative sanction scenarios.

The Impact of Input Trade Liberalization on the Entry of Foreign Firms: Evidence from a Quasi-Natural Experiment in China

This paper integrates trade policy and foreign direct investment into a unified analytical framework, and investigates the effects of input trade liberalization on the entry of foreign firms. To identify the causal effects, we utilize China’s accession to the WTO in 2001 as a quasi-natural experiment, and perform difference-in-difference estimation. The results show that input trade liberalization significantly increases foreign entry. We also find that input trade liberalization not only promotes the entry of new foreign firms, but also restrains the exit of existing foreign firms, thereby contributing to the net growth of the number of foreign firms. The mechanism tests show that increasing variety as well as quality of intermediate input and reduction in marginal cost are the potential channels through which input trade liberalization promotes foreign entry. This paper further demonstrates that institutional environment strengths the positive effect of input trade liberalization on foreign entry, and the promotive effect of input trade liberalization on foreign entry increases with industry import intensity, additionally, input trade liberalization is also conducive to improving the quality of foreign investment.

Industries on the edge: The most exposed sectors to microeconomic shocks

We propose a measure of industries’ direct and indirect exposure to microeconomic TFP shocks that originate from any sector of the economy. We show that sectors that rely heavily on intermediate inputs from other industries are more vulnerable to such shocks. In a sample of 43 countries, we find that industries with higher shock exposure experienced significantly greater output volatility between 2000 and 2014, highlighting the importance of input–output linkages in driving microeconomic output volatility. During this period, sectors such as refined petroleum product manufacturing, warehousing, and electricity & gas supply were among the most exposed to shocks.

Have greed and rapidly rising wages triggered a profit-wage-price spiral? Firm-level evidence for Belgium

Our study of Belgian firms found that 2022 price increases were largely attributable to rising intermediate input costs. Wage increases also contributed to prices hikes. Interestingly, markups appeared to play no role in driving up prices and in fact decreased or even offset the contribution of wages. In a country with automatic wage indexation, this is an important point for discussion in the debate on the profit-price or wage-price spiral.