Working Paper: NBER ID: w14416
Authors: Pinelopi K. Goldberg; Amit Khandelwal; Nina Pavcnik; Petia Topalova
Abstract: New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from a large developing economy--India--to investigate the relationship between declines in trade costs, the imports of intermediate inputs and domestic firm product scope. We estimate substantial static gains from trade through access to new imported inputs. Accounting for new imported varieties lowers the import price index for intermediate goods on average by an additional 4.7 percent per year relative to conventional gains through lower prices of existing imports. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms, which implies potentially large dynamic gains from trade. This expansion in firms' product scope is driven to a large extent by international trade increasing access of firms to new input varieties rather than by simply making existing imported inputs cheaper. Hence, our findings suggest that an important consequence of the input tariff liberalization was to relax technological constraints through firms' access to new imported inputs that were unavailable prior to the liberalization.
Keywords: Trade; Growth; Intermediate Inputs; India
JEL Codes: F1; F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased availability of new imported varieties of inputs (O39) | lower production costs (D24) |
| lower production costs (D24) | relax technological constraints for domestic firms (O25) |
| declines in input tariffs (F14) | increase in the scope of production by domestic firms (L25) |
| declines in input tariffs (F14) | improved firm performance (output, TFP, R&D activities) (L25) |
| lower input tariffs (F13) | increase in firms' product scope (L25) |