INVENTORIES, INPUT COSTS, AND PRODUCTIVITY GAINS FROM TRADE LIBERALIZATIONS

Shafaat Yar Khan and Armen Khederlarian

International Economic Review, 2025, vol. 66, issue 1, 175-199

Abstract: Sourcing internationally allows firms to access cheaper or better inputs but increases logistical costs, particularly through higher inventory holdings. This article examines the productivity gains from trade liberalizations accounting for inventory costs—typically omitted from revenue‐based measures of productivity. In model simulations, we show that omitting these overestimates the effect of input tariffs on productivity and that controlling for inventories in the estimation of productivity corrects the bias. We document these facts during India's 1990s reforms. First, firms' inventories increase strongly with imports. Second, productivity gains drop by 20–50% once inventory costs are accounted for.

Date: 2025
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/iere.12731

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:66:y:2025:i:1:p:175-199

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0020-6598

Access Statistics for this article

International Economic Review is currently edited by Michael O'Riordan and Dirk Krueger

More articles in International Economic Review from Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association 160 McNeil Building, 3718 Locust Walk, Philadelphia, PA 19104-6297. Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().