Intermediate Goods Trade, Technology Choice and Productivity

Shin-Kun Peng (), Raymond Riezman and Ping Wang

No 14-A003, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: We develop a dynamic model of intermediate goods trade in which the pattern and the extent of intermediate goods trade are endogenous. We consider a small open economy whose final good production employs an endogenous array of intermediate goods, from low technology (high cost) to high technology (low cost). The underlying intermediate goods technology evolves over time. We allow for endogenous markups and consider the effect of trade policy on both the intensive and extensive margins. We show that either domestic or foreign trade liberalization reduces the range of exports and the range of domestic intermediate goods production. Either type of trade liberalization reduces intermediate producer markups and increases fi nal good output and average productivity, with stronger positive productivity effects for newly imported intermediate inputs. However, domestic trade liberalization results in lower aggregate and average technology for domestic intermediate good producers.

Keywords: Intermediate Goods Trade; Endogenous Technology Choice; Endogenous Markup; Extensive versus Intensive Margin Effect of Trade liberalization (search for similar items in EconPapers)
JEL-codes: D92 F12 O24 O33 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2014-02
New Economics Papers: this item is included in nep-int
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Related works:
Working Paper: Intermediate Goods Trade, Technology Choice and Productivity (2015)
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