Complementarity between rm exporting and rm …e124/Firm...Global sourcing in a multiple-country...
Transcript of Complementarity between rm exporting and rm …e124/Firm...Global sourcing in a multiple-country...
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Complementarity between firm exporting and firmimporting on industry productivity and welfare
— KIEA Conference 2019 —
Tomohiro Ara
Fukushima Univ
December 20, 2019
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Motivation
Intermediate inputs have a large and growing share of international trade
relative to final goods:
“Offshoring”
“Outsourcing”
“Vertical specialization”
“Fragmentation of production processes”
Hypotheses:
Trade flows of inputs and outputs may be differently affected by trade costs
Welfare gains may be different between input trade and output trade
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Motivation (cont.)Import from China to Japan (2000-2015)
2040
6080
100
120
Rea
lim
port
valu
e(b
illio
nU
SD)
2000 2005 2010 2015Year
Final consumption Intermediate input & capital formation
Banri Ito (AGU) Trade exposure & electoral protectionism 06/30 6 / 23
Japan’s imports from China in 2000–2015
Source: Ito (2018)
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Motivation (cont.)
China’s imports from the world in 2000-2009
Source: Ara et al. (2018)
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Questions and results
How different are the impacts of trade barriers on trade flows between
intermediate inputs and final goods?:
The gravity equation for final-good trade (i = F ) or input trade (i = I ) is
Exports iAB = Constant i ×GDPα
A × GDPβB
(Trade barriersAB)ϵi
where ϵi is the trade elasticity with respect to trade barriers
The trade elasticity is endogenously greater for inputs than final goods
|ϵI | > |ϵF |
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Questions and results (cont.)
How large are the welfare gains from trade for intermediate inputs relative to
final goods?:
Changes in welfare are expressed in terms of the domestic share λi and ϵi :
W i =(λi)− 1
ϵi
where λi ≡ (λi )′/λi is changes in the domestic share for i ∈ F , I
The welfare gains from trade are smaller for input trade in bounded Pareto
distributions (e.g., Helpman et al., 2008)
W I < W F
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Outline
Related literature
Basic model:
Intermediate-input firms in the upstream sector
Final-good firms in the downstream sector
Equilibrium:
The gravity equation of intermediate inputs
The impact of variable trade costs
Summary
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Related literature
Antras et al. (2017):
Global sourcing in a multiple-country setting
E-K framework for intermediate-input firms
Bernard et al. (2018):
Two-sided heterogeneity
Matching between downstream and upstream sectors
Melitz and Redding (2014b):
Final-good production by a sequence of traded intermediate inputs
Perfectly competitive markets in every production sector
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Model
Setup:
Two symmetric countries
Only intermediate inputs are tradable and final goods are non-tradable
Labor is only a factor of production
Input firms (final-good firms) draw productivity φ (ϕ) from G(φ) (G(ϕ))
Fixed production cost f + variable trade cost τ , fixed trade cost ft where τσ−1ft > f
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Model (cont.)
1
2 -
- 11 -
1 -2 1 -1
- 11 -
21 - 2 -
1
Firm exporting
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Model (cont.)
2 2
1 2
- 22
- 2
22 1 2
Firm importing
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Consumers
Consumers’ preferences:
U =
[∫v∈V
q(v)σ−1σ dv +
∫v∈V
q(v)σ−1σ dv
] σσ−1
, σ > 1
Final-good demands:
q(v) = RFPσ−1p(v)−σ
q(v) = RFPσ−1p(v)−σ
P =
[∫v∈V
p(v)1−σdv +
∫v∈V
p(v)1−σdv
] 11−σ
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Final-good firms
Final-good firms’ technology:
q(ϕ) = ϕ
[∫ω∈Ω
x(ω)σ−1σ dω
] σσ−1
q(ϕ) = ϕ
[∫ω∈Ω
x(ω)σ−1σ dω +
∫ω∈Ω
xt(ω)σ−1σ dω
] σσ−1
Expenditure of final-good firms:
e(ϕ) =
∫ω∈Ω
γ(ω)x(ω)dω
e(ϕ) =
∫ω∈Ω
γ(ω)x(ω)dω +
∫ω∈Ω
γt(ω)xt(ω)dω
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Final-good firms (cont.)
Input demands:
x(ω) = e(ϕ)Γσ−1γ(ω)−σ
Γ =
[∫ω∈Ω
γ(ω)1−σdω
] 11−σ
and
x(ω) = e(ϕ)Γσ−1γ(ω)−σ
Γ =
[∫ω∈Ω
γ(ω)1−σdω +
∫ω∈Ω
γt(ω)1−σdω
] 11−σ
where
Γ > Γ
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Final-good firms (cont.)
Pricing rules:
p(ϕ) =σ
σ − 1
Γ
ϕ
p(ϕ) =σ
σ − 1
Γ
ϕ
Γ < Γ =⇒ p(ϕ) < p(ϕ)
Optimal profits:
πF (ϕ) =rF (ϕ)
σ− f = Γ1−σBFϕσ−1 − f
πF (ϕ) =rF (ϕ)
σ− f − ft = Γ1−σBFϕσ−1 − f − ft
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Final-good firms (cont.)
!"#$
%&
'%&
%&, '%&
−*
−* − *+
(!+∗)"#$(!∗)"#$
Only more productive firms can import inputs (Bernard et al., 2007, 2012, 2018a)
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Final-good firms (cont.)
Free entry condition:∫ ϕ∗t
ϕ∗πF (ϕ)dG(ϕ) +
∫ ∞
ϕ∗t
πF (ϕ)dG(ϕ) = fe
Labor market clearing condition:
Ne fe + Ne
∫ ϕ∗t
ϕ∗fdG(ϕ) + Ne
∫ ∞
ϕ∗t
(f + ft) dG(ϕ) = LF
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Intermediate-input firms
!"#$
%&
%'&
%&, %'&
−*
−*'
(!'∗)"#$(!∗)"#$
Only more productive firms can export inputs (Bernard et al., 2007, 2012, 2018a)
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Equilibrium
Four ZCP and two FE conditions have the following unknowns:
ϕ∗, ϕ∗t , BF , φ∗, φ∗
t , B I
Impact of variable trade costs on the productivity cutoffs:
dϕ∗
dτ< 0,
dϕ∗t
dτ> 0,
dφ∗
dτ< 0,
dφ∗t
dτ> 0
=⇒ co-movement between two production sectors
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Equilibrium (cont.)
! ↓
Less productive firms enter into the foreign market in both sectors
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Equilibrium (cont.)
Aggregate input exports:
R It = Me
∫ ∞
φ∗t
r It (φ)dG(φ)
= ψIL(B I )k
σ−1 τ− k(σ−1)
2(σ−1)−k f1− k
2(σ−1)−kt
Trade elasticity of intermediate inputs:
ζ Io ≡ −∂ lnRIt
∂ ln τ
= (σ − 1)︸ ︷︷ ︸Intensive margin elasticity
+(σ − 1)[k − (σ − 1)]
2(σ − 1)− k︸ ︷︷ ︸Input extensive margin elasticity
+(σ − 1)[k − (σ − 1)]
2(σ − 1)− k︸ ︷︷ ︸Output extensive margin elasticity
=k(σ − 1)
2(σ − 1)− k> k
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Equilibrium (cont.)
! ↓
Resource reallocations arise only in the downstream sector
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Summary
We show that:
Trade elasticity is greater in intermediate inputs than final goods
Ara and Zhang (2019) provide evidence in the China Customs data
We also compare the welfare gains in the two types of trade:
Welfare gains from trade are the same under the Pareto distribution
Identify the condition under which welfare gains are greater for input trade