Imported Intermediate Inputs and Domestic Product Growth: Evidence from India

Abstract

New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from India to investigate the relationship between declines in trade costs, imports of intermediate inputs, and domestic firm product scope. We estimate substantial gains from trade through access to new imported inputs. Moreover, we find that lower input tariffs account on average for 31% of the new products introduced by domestic firms. This effect is driven to a large extent by increased firm access to new input varieties that were unavailable prior to the trade liberalization. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

The Impact of Chinese Import Penetration on the South African Manufacturing Sector

“…As shown by Amiti and Konings (2007) access to cheaper imported inputs can raise productivity via learning, variety and quality effects. Access to new input varieties can also stimulate output growth and the introduction of new products (Goldberg, Khandelwal, Pavcnik, & Topalova, 2010). These effects may be considerable in the case of Chinese competition.…”

Input Trade Liberalization and Export Product Scope: Evidence from China

“…Our paper builds on and extends the existing literature on product scope of multiproduct firms (Goldberg et al, 2010;Qiu and Yu, 2014). While these papers emphasize the role of market expansion effects, competition effects and input effects, we take a step further towards investigating heterogeneous impacts of input trade liberalization on firms' export product scope in industries with different scope of product difference.…”

“…Moreover, it shows that our results are robust to different definitions of varieties. One of the challenges in studying the impacts of input trade liberalization is the potential endogenous problem because firms in low-productivity sectors would lobby the government for protection to maintain import tariff at a relatively high level (Goldberg et al, 2010;Yu, 2014;Fan et al, 2015;Bas and Kahn, 2015). I control for such reverse causality by using an IV approach.…”

“…important sources of exporters' success in international trade 1 (see, Eckel and Neary, 2010;Goldberg et al, 2010;Dhingra, 2013;Nocke and Yeaple 2014;Arkolakis et al 2015;Flach and Irlacher, 2015;Hottman et al, 2015). Introducing a new product or a new variety of existing products and thus expanding the product lines increase exporters' revenues in the global marketplace.…”

“…Input trade liberalization provides domestic firms great opportunities to access to cheaper and previously unavailable inputs (Goldberg et al, 2010). For one thing, reductions in the import prices of existing inputs raise the likelihood that a firm can manufacture/export previously unprofitable products ("intensive margin").…”