Two‐sided heterogeneity: New implications for input trade

This article 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 t...

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Bibliographic Details
Published inReview of international economics Vol. 31; no. 3; pp. 1032 - 1067
Main Author Ara, Tomohiro
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.08.2023
Subjects
input trade
selection
Selection effects
Trade liberalization
two‐sided heterogeneity
vertical linkages
Welfare
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Summary:This article 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.
Bibliography:Funding information
Japan Society for the Promotion of Science, Grant/Award Numbers: 19K01599; 20H01492; 20H01498
ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 14
ISSN:0965-7576
1467-9396
DOI:10.1111/roie.12652