 Firm size, quality bias and import demandJoaquin Blaum, Claire Lelarge and Michael Peters Journal of International Economics, 2019, vol. 120, issue C, 59-83 Abstract: Commonly used firm-based models of importing imply that firm productivity should have no effect on the allocation of expenditure across a common set of sourcing countries. Using French data, we show that this homotheticity property is soundly rejected: larger firms concentrate their import spending on their top varieties, holding the sourcing strategy fixed. To rationalize this finding, we propose a novel model of importing that features (i) a complementarity between firm productivity and input quality and (ii) heterogeneity across countries in their ability to produce high quality inputs. This model implies that large firms bias their spending towards countries with a comparative advantage in producing high quality inputs and hence generates a non-homothetic import demand system. We provide empirical support for this and other predictions of this theory. Keywords: Trade in intermediate inputs; Firm heterogeneity; Firm size; Non-homothetic import demand; Quality-productivity complementarity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:120:y:2019:i:c:p:59-83 DOI: 10.1016/j.jinteco.2019.04.004 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
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