Input reallocation within multi-product firms

Abstract

This paper studies within-firm input reallocation, resulting from trade protection on imported raw materials inputs used in firm-level production. Indian antidumping cases show that firms significantly lower their use of protected inputs from abroad, relative to other inputs in response to import protection. We develop a firm-level input-output correspondence, to identify outputs produced with protected inputs and find significant output losses relative to sales of other outputs. For India this corresponds to an aggregate annual output loss of up to 10% of Indian manufacturing output growth. The paper contributes to the misallocation debate by providing micro-foundations underlying more aggregate misallocations.

The good, the bad and the ugly: Chinese imports, European Union anti-dumping measures and firm performance

“…3 Although international trade policy measures such as AD duties aim to protect domestic industries, they often result in higher prices for consumers, and increase the costs of import-dependent rms impacting their exporting capability (Irwin, 2017). In addition, these measures constrain the ability of import-dependent rms to access cheaper or higher-quality intermediate inputs from foreign markets, with negative implications for their position in the global value chains of production and for their productivity more generally (Konings and Vandenbussche, 2013;Vandenbussche and Viegelahn, 2018).…”

Global Value Chains, Trade Shocks and Jobs: An Application to Brexit

“…Admittedly, WIOD data have an underlying proportionality assumption embedded in the way the data are constructed. But using firm-level data does not overcome this limitation as constructing firm-level input-output linkages, also requires making assumptions on which inputs are used in which outputs (Vandenbussche and Viegelahn (2018)). In the Brexit application, we introduce symmetric MFN tariffs between the UK and the rest of the EU and consider all other trade relations to remain unchanged.…”

“…6 Many firm-level studies with information on firm-level trading are often limited in their geographic scope and typically only include firms from one country without information on who these firms are buying from or selling to (Topalova and Khandelwal, 2011;Amiti and Konings, 2007;Vandenbussche and Viegelahn, 2018).…”

Trade Diversion and Trade Deficits: The Case of the Korea-U.S. Free Trade Agreement

“…In fact, consumption goods drive much of the sensitivity observed for the sample as a whole: the inclusion of the consumption interaction term takes on more than the full value and significance of the baseline coefficient (in Column (2) of Figure 4, where we observe a very gradual increase in U.S. imports of intermediate goods from South Korea after KORUS took effect and the increase in South Korean import shares persisting mainly for goods with new tariff preference greater than 5 percent. We surmise that it often may take time for firms to respond to new tariff preferences by reorganizing supply chains in this case, or that there are costs involved which make it unprofitable to do so, similar to lags in the response by Indian firms to changes in tariffs on intermediate goods found by Vandenbussche and Viegelahn (2018). Were our sample to include 2015 and 2016, one might find more sensitivity for intermediate goods.…”

“…This alternative does not yet appear to be an important facet in the early years of the KORUS agreement, as U.S. imports of automotive parts rose only slightly from 7.7 billion dollars in 2012 to 7.9 billion dollars in 2017. If the relocation of production requires a longer adjustment period due to the inherent lags in shifting production across countries, as documented by Vandenbussche and Viegelahn (2018), the trade effects on intermediate inputs such as auto parts may be observed in the future.…”