Does input trade liberalization boost downstream firms' exports? Theory and firm-level evidence

Abstract

We analyze the impact of input tariffs on the export status and export performance of heterogeneous processing firms. Using a theoretical model with downstream firms exhibiting different levels of productivity, we show that lower input tariffs may increase the export sales of high-productivity firms at the expense of low-productivity firms and may decrease the probability of firms entering foreign markets. We compare the predictions of the theoretical model with firm-level data from the French agrifood sector by developing a two-stage estimation procedure that uses an equation for selection into export markets in the first stage and an export's equation in the second stage. The liberalization of agricultural trade appears to favor the reallocation of market share from low- to high-productivity agrifood firms. In addition, our results suggest that, whether lower input tariffs increase total export sales (and jobs), a large fraction of the least productive exporting firms may lose from an additional decrease in agricultural input tariffs

Agricultural Prices, Selection, and the Evolution of the Food Industry

“…In addition, his study reveals that …rms with higher value added have lower labor shares. Chevassus-Lozza et al (2012) con…rm these …ndings with data on French agri-food …rms.…”

“…Hence, a …rm can be more e¢ cient, and use a less labor-intensive technology to produce its variety. In addition, it appears that the ratio of intermediate consumption to labor cost, given by 'z h , is not constant across …rms and increases with labor productivity, which …ts well with empirical evidence (see Chevassus-Lozza et al, 2012).…”

“…In other words, we can also assume that each …rm draws randomly from a common distribution. Chevassus-Lozza et al (2012) show if the ranking of …rms with respect to labor productivity corresponds to the ranking of …rms according to the intermediate input productivity, a su¢ cient condition for @ p h ;z h =@z h > 0 is that heterogeneity in labor productivity be higher than heterogeneity in intermediate input productivity. Note that M h = R h =r h where R h (resp.,r h ) is the total (resp., average) income of the …nal sector …rms in country h. Knowing R h = L and…”

“…Yet, empirical evidence shows that more productive …rms are more likely to enter the import market than in the same industry (Kashara and Lapham, 2007;Kugler and Verhoogen, 2009). For exampe, Chevassus-Lozza et al (2012) reveal that, under certain conditions, agricultural tari¤ liberalization reduces the probability of exporting and increases the export sales of high productive …rms at the expense of low productive …rms in the food sector. However, they consider that the mass of …rms in the domestic market is exogenous and that all …rms source to the same price because of a complete pass-through of tari¤ reduction on domestic prices.…”

Trade Policy Implications of Global Value Chains

“…Bas and Strauss-Kahn (2011) show that imported inputs have positive effects on French firms' productivity and their export performance. Focusing on the French agri-food sector, Chevassus-Lozza et al (2013) also find evidence that input tariff reductions lead to a reallocation of export sales from less productive 4.…”