Trade In Intermediate Inputs Research Articles

Explaining Export Performance through Inputs: Evidence from Aggregated Cross‐country Firm‐level Data

AbstractWhich trade barrier related to intermediate inputs forms a greater burden on the export performance of firms in developing countries? Using aggregated cross‐country firm‐level data covering 43 mostly developing economies, this paper estimates the marginal importance of the impact of various intermediate input trade cost barriers, namely tariffs, non‐tariff barriers (NTBs) and services barriers, on firms' export behavior. In a cross‐sectoral setting, this paper takes the firm's export performance in goods as a central focus to study the effects of these different trade barriers through the exporting firm's choice of use of intermediate inputs. The results show that the most significant trade barriers on inputs that impede export performance in developing countries are mainly NTBs and restrictions of services.

Rules of Origin in Customs Unions and Global Free Trade

In a three-country Customs Union (CU) formation game, I introduce international trade in intermediate inputs and Rules of Origin (RoO) restrictions. In the case of symmetric countries, I show that as countries become more involved in global supply chains, global free trade is less likely to be a stable equilibrium outcome. RoO can help solving this problem. In the case of asymmetry, depending on the degree of the globalization, free riding (for high) or exclusion motive (for low) prevents global free trade. Correspondingly, it is shown that RoO can have helpful or detrimental effect on attaining global free trade.

The Gains from Input Trade with Heterogeneous Importers

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.

Imported inputs, irreversibility, and international trade dynamics

In aggregate data, international trade volumes adjust slowly in response to relative price changes, an observation at odds with static models. This paper develops a model of trade in intermediate inputs in which heterogeneous producers face irreversibilities in adjusting their importing status. Changes in aggregate imports are accounted for by adjustment within importing plants, through reallocation between non-importers and importers, and through changes in the importing decisions of new and existing plants. When calibrated to Chilean plant-level data, the model shows that irreversibilities are important for generating aggregate and plant-level dynamics of trade flows in line with the data. In response to a permanent trade reform, increased importing at existing plants crowds out entry, raising consumption above its long-run level, and leading to welfare gains larger than a static model would imply.

Optimal monetary policy with international trade in intermediate inputs

This paper examines optimal monetary policy in a two-country New Keynesian model with international trade in intermediate inputs. We derive the loss function of a cooperative monetary policymaker and find that the optimal monetary policy must target intermediate-goods price inflation rates, final-goods price inflation rates, final-goods output gaps, and relative-price gaps. We use the welfare loss under the optimal monetary policy as a benchmark to evaluate the welfare implications of three Taylor-type monetary policy rules. A main finding is that the degree of price stickiness at the stage of intermediate-goods production is a key factor to determine which policy rule should be followed. Specifically, when the degree of price stickiness at the stage of intermediate-goods production is high, the policymaker should follow intermediate-goods PPI-based Taylor rule, whereas CPI-based Taylor rule should be followed when the degree of price stickiness at the stage of intermediate-goods production is intermediate or low.

Uncertainty, Risk Aversion and International Trade

This paper develops a general equilibrium model of international trade in homogenous intermediate inputs. In the model, trade between countries is driven by uncertainty in the delivery price of inputs. Because their managers are risk-averse, final-good firms contract with multiple suppliers to decrease the variability of their profits. The analysis shows risk diversification provides an incentive for international trade over and above such reasons as comparative advantage and economies of scale, and highlights a new channel -- a reduction in uncertainty -- through which trade can increase welfare.

Trade in Intermediate Inputs and Trade Facilitation in Africa's Regional Integration

AbstractDespite concerted efforts, Africa's regional integration process has encountered delays. Since the third stage of the Abuja Treaty in 2008, piecemeal progress has been observed. It therefore begs a difficult but relevant question: why is the regional integration process stalling? The conventional answer lies in challenges such as inadequate financial resources and infrastructure for trade among others. However, an approach is proposed to refocus regional integration on resource‐based industrialization. The level of industrialization is examined in Africa using Balassa's Revealed Comparative Advantage Indexes based on the BACI dataset. Further, an input‐output table analysis on production of Kenya's trade in intermediate inputs is done based on the GTAP 8 dataset. The analysis finds that while the level of industrialization is heterogeneous among African economies, the overall level is low. Also, in the case of Kenya and five regions in Africa, imported intermediate was found to be a critical input to production, lending support to the importance of trade facilitation measures in ensuring timely and cost‐effective sourcing of inputs.

The Structure ofEurope: International Input–Output Analysis with Trade in Intermediate Inputs and Capital Flows

AbstractIn this paper we theoretically derive an internationalRybczynski matrix. Its elements indicate the aggregate output change in a country when endowment with one or more factors in the same or another country is increased. This allows us to characterize the production structure in 11 countries of theEuropeanUnion. Starting from a baseline case with free trade in final goods only, we analyze two types of interaction between countries: international trade of intermediate inputs and internationally mobile capital.

R&D, trade in intermediate inputs, and the comparative advantage of advanced countries

This paper examines the accumulation of physical capital versus knowledge (R&D) capital as a determinant of advanced countries’ comparative advantage. I show that advanced countries are abundant in R&D resources, specialize in knowledge-intensive stages of high-technology industries, and outsource labor-intensive stages of the industries to labor-abundant countries. In contrast, global data on production and trade cannot support the conventional view that advanced countries specialize in and export capital-intensive goods. My results indicate that the accumulation of knowledge capital plays a vital role in explaining advanced countries’ comparative advantage.

Productivity, trade and the R&D content of intermediate inputs

This paper explores a novel way to evaluate the extent to which R&D knowledge embodied in intermediate inputs correlates with productivity at the industry level. We propose the concept of the R&D content of intermediates, which represents the knowledge stock embodied in the intermediate inputs used in production. Using a sample of 32 countries and 13 manufacturing industries we compute the elasticity of industry-level TFP with respect to the R&D content of intermediates. We find that among high-R&D industries, the R&D embodied in inputs purchased from the own industry is significantly associated with industry-level TFP. In this case, both own-industry domestic inputs as well as those imported from the G5 countries are relevant. In contrast, intermediate input trade does not appear to be a significant channel of R&D diffusion among low-R&D industries.

Carbon and Materials Embodied in the International Trade of Emerging Economies

SummaryProduction in emerging economies, such as Brazil, Russia, India, China, South Africa, and Argentina (BRICSA), increased substantially over the past two decades. This is, on the one hand, due to growing domestic demand within these countries, and, on the other hand, due to a deepened international division of work. Global trade linkages have become denser and production chains are no longer restricted to only one or two countries. The volume of international trade in intermediate inputs as well as final consumption goods has tripled in the past two decades. With this, carbon dioxide (CO2) emissions and materials embodied in traded goods have increased, making it increasingly difficult to identify the actual causes of emissions and material extractions, as producing and extracting countries are not necessarily consuming the resulting goods. Using the multiregional input‐output Global Resource Accounting Model (GRAM), this article shows how global carbon emissions and materials requirements are allocated from producing/extracting countries to consuming countries. It thereby contributes to the rapidly growing body of literature on environmental factors embodied in international trade by bringing two key environmental categories—CO2 emissions and materials—into one consistent and global framework of analysis for the first time. The results show that part of the increase in carbon emissions and materials extraction in BRICSA is caused by increasing amounts of trade with countries in the Organisation for Economic Co‐operation and Development as well as a growing demand for goods and services produced within BRICSA.

Trade in Intermediate Inputs and Business Cycle Comovement

Does input trade synchronize business cycles across countries? I incorporate input trade into a dynamic multisector model with many countries, calibrate the model to match bilateral input-output data, and estimate trade-comovement regressions in simulated data. With correlated productivity shocks, the model yields high trade-comovement correlations for goods, but near-zero correlations for services and thus low aggregate correlations. With uncorrelated shocks, input trade generates more comovement in gross output than real value added. Goods comovement is higher when (i) the aggregate trade elasticity is low, (ii) inputs are more substitutable than final goods, and (iii) inputs are substitutable for primary factors. (JEL E23, E32, F11, F14, F43, F44)

IMMIGRATION VERSUS OUTSOURCING: A DEVELOPING COUNTRY’S VIEW

This paper provides a comparative study between temporary immigration policy and product outsourcing process, from the low-income developing country's point of view, which is supply side constrained by the availability of skilled labour. A two-country general equilibrium model establishes an inverse relationship between temporary immigration quota and product outsourcing. Though temporary immigration quota enhances world welfare and the developed country welfare, its impact on welfare level of the developing country is uncertain. In the empirical part, a panel data analysis shows that real consumption level of a set of developing countries increases with an increase in product outsourcing, given an inverse relationship between product outsourcing and temporary immigration policy.Keywords: Immigration, Outsourcing, Intermediate Input, Consumption, Panel AnalysisJEL classification: C23, E20, F2, F12, F22(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONConventionally international trade between a developed and a developing country, from a theoretical perspective, is based on the difference in relative factor endowments among them. International trade helps utilise the abundant factor. Internationally trading countries gain from relative factor abundance and lower relative price of factor inputs. For instance, a relative labour abundant developing country use the abundant factor and the gains from trade follow from lower relative factor price of labour. In recent times, trade in intermediate goods and factor inputs have assumed significance along with conventional merchandise trade in final goods. For a relatively capital abundant country, with regards to trade in factors inputs, the policy options are between import of low-priced foreign labour and export of domestic capital. It has been theoretically established, a la Ramaswami (1968), that importation of low-priced foreign labour is a better option than exportation of domestic capital for capital abundant developed countnes. Now the question is, What is the choice for a labour abundant country: exportation of domestic labour or importation of foreign capital? This paper investigates into the relationship between exports of domestic labour, that is, temporary migration, and product outsourcing from the perspective of a developing country.Migration and outsourcing are the two manifestations of trade in factor inputs: while migration includes cross-border movement of natural persons, international outsourcing1 involves cross-border movement of capital. Both immigration and international outsourcing increase cost-efficiency of the global production system (Murat and Paba, 2003). The labour-intensive part of the production process is reallocated from the developed country to the labour abundant developing country; the developing countries, engaged in such outsourcing contract, become a part of the globally integrated production chain.2 For instance, a growing outsourcing demand is directed towards India from different capital abundant countries including the USA. There are two types of outsourcing; product outsourcing and service outsourcing. Globally while product outsourcing takes place in engineering, automobile, textile, and chemical industries (Dubey, 2003),3 service outsourcing takes place in communication, information technology and information technology enabled sectors. The developing countries, through outsourcing not only expand their market for intermediate products, but also benefit from employment generation, profit maximisation, quality up-gradation, capacity utilisation skill-improvisation and technology transfer.Immigration is another way by which the pool of high-skilled labour in developing countries is being used by developed countries. Temporary immigration refers to the temporary movement of persons from one country to another to provide on-site services, when immigrants do not get the right to dwell permanently in the host country. …

The Rise of Middle Kingdoms: Emerging Economies in Global Trade

In this paper, I examine changes in international trade associated with the integration of low- and middle-income countries into the global economy. Led by China and India, the share of developing economies in global exports more than doubled between 1994 and 2008. One feature of new trade patterns is greater South-South trade. China and India have booming demand for imported raw materials, which they use to build cities and factories. Industrialization throughout the South has deepened global production networks, contributing to greater trade in intermediate inputs. A second feature of new trade patterns is the return of comparative advantage as a driver of global commerce. Growth in low- and middle-income nations makes specialization according to comparative advantage more important for the global composition of trade, as North-South and South-South commerce overtakes North-North flows. China's export specialization evolves rapidly over time, revealing a capacity to speed up product ladders. Most developing countries hyper-specialize in a handful of export products. The emergence of low- and middle-income countries in trade reveals significant gaps in knowledge about the deep empirical determinants of export specialization, the dynamics of specialization patterns, and why South-South and North-North trade differ.

Estimates of the Trade and Welfare Effects of NAFTA

We build into a Ricardian model the role of trade in intermediate inputs, sectoral linkages and differing productivity levels across sectors. We also propose a method to estimate sectoral trade elasticities. In our model, the trade effects due to overall tariff reductions account for most of the observed changes in trade flows for NAFTA members. We decompose the effects of NAFTA and find that 93% of Mexico’s, 58% of Canada’s and 55% of the United States’ trade effects can be attributed to NAFTA’s tariff reductions. Trade in intermediate inputs and input-output linkages can amplify the welfare effects of tariff reductions.

Trade Adjustment and Productivity in Large Crises

We empirically characterize the mechanics of trade adjustment during the Argentine crisis. Though imports collapsed by 70 percent from 2000 to 2002, the entry and exit of firms or products at the country level played a small role. The within-firm churning of imported inputs, however, played a sizeable role. We build a model of trade in intermediate inputs with heterogeneous firms, fixed import costs, and roundabout production. Import demand is non-homothetic and the implications of an import price shock depend on the full distribution of firm-level adjustments. An import price shock generates a significant decline in productivity. (JEL F14, F31, F43, L60, O14, O19)

AGGLOMERATION AND TRADE: STATE-LEVEL EVIDENCE FROM U.S. INDUSTRIES*

ABSTRACT This paper investigates the connection between economic agglomeration and trade patterns within the United States at the industry level. On the consumption side, industry- and state-specific international imports and elasticities of substitution are shown to be systematically connected to consumption agglomeration effects, while on the production side, industry- and state-specific international exports and intermediate input trade are shown to be systematically connected to production agglomeration and specialization effects. Industry structures play an important role in the determination and magnitude of these effects.

Trade Adjustment and Productivity in Large Crises

The authors empirically characterize the mechanics of trade adjustment during the Argentine crisis using detailed firm-level customs data covering the universe of import transactions made during 1996-2008. Their main findings are as follows: First, the extensive margin defined as the entry and exit of firms or of products (at the country level) plays a small role during the crisis. Second, the sub-extensive margin defined as the churning of inputs within firms plays a sizeable role in aggregate adjustment. This implies that the true increase in input costs exceeds that imputed from conventional price indices. Third, the relative importance of these margins and of overall trade adjustment varies with firm size. Motivated by these facts, we build a model of trade in intermediate inputs with heterogeneous firms, fixed import costs, and round-about production to evaluate the channels through which a collapse in imports affects TFP (total factor productivity) in manufacturing. Measured aggregate productivity in the sector depends on within-firm adjustments to the varieties imported as well as the joint distribution of each firm's technology and the share of imports in its total spending on inputs. We simulate an imported input cost shock and show that these mechanisms can deliver quantitatively significant declines in manufacturing TFP.

Trade Adjustment and Productivity in Large Crises

The authors empirically characterize the mechanics of trade adjustment during the Argentine crisis using detailed firm-level customs data covering the universe of import transactions made during 1996-2008. Their main findings are as follows: First, the extensive margin defined as the entry and exit of firms or of products (at the country level) plays a small role during the crisis. Second, the sub-extensive margin defined as the churning of inputs within firms plays a sizable role in aggregate adjustment. This implies that the true increase in input costs exceeds that imputed from conventional price indices. Third, the relative importance of these margins and of overall trade adjustment varies with firm size. Motivated by these facts, we build a model of trade in intermediate inputs with heterogeneous firms, fixed import costs, and round-about production to evaluate the channels through which a collapse in imports affects TFP (total factor productivity) in manufacturing. Measured aggregate productivity in the sector depends on within-firm adjustments to the varieties imported as well as the joint distribution of each firm's technology and the share of imports in its total spending on inputs. We simulate an imported input cost shock and show that these mechanisms can deliver quantitatively significant declines in manufacturing TFP.

Agglomeration and Trade: State-Level Evidence from U.S. Industries

This paper investigates the connection between economic agglomeration and trade patterns within the U.S. at the industry level. On the consumption side, industry- and state-specific international imports and elasticities of substitution are shown to be systematically connected to consumption agglomeration effects, while on the production side, industry- and state-specific international exports and intermediate input trade are shown to be systematically connected to production agglomeration and specialization effects. Industry structures play an important role in the determination and magnitude of these effects.