Two-sided Heterogeneity: New implications for input trade

Tomohiro Ara

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: This paper develops a heterogeneous firm model to analyze selection effects at different production stages on trade-induced intra-industry resource reallocations. Using a two-country symmetric setting in which both inputs and final goods are costly to trade subject to selection, we show that the trade elasticity of intermediate goods is endogenously greater than that of final goods due to an extra adjustment in the extensive margin. We also show that the welfare gains from input trade liberalization are greater than those from output trade liberalization if and only if the domestic input share is smaller than the domestic output share.

Pages: 48 pages
Date: 2019-08
New Economics Papers: this item is included in nep-bec, nep-eff and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:19065

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