Imported inputs, irreversibility, and international trade dynamics

Ramanarayanan, Ananth

doi:10.1016/j.jinteco.2016.10.007

Cited by 21 publications

(17 citation statements)

References 32 publications

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“…Overall, the literature does not need any complicated solutions to the international elasticity puzzle as opposed to studies such as by Ruhl (2008), Fitzgerald and Haller (2014), Crucini and Davis (2016), Ramanarayanan (2015) or Arkolakis, Eaton, and Kortum (2012).…”

Section: Resultsmentioning

confidence: 98%

“…In contrast, the existing literature has focused on many solutions to the puzzle based on the supply side. For example, Ruhl (2008) has proposed a solution based on …rm-level entry costs and uncertainties on future productivities in a Melitz (2003) framework; Fitzgerald and Haller (2014) have both …xed and sunk costs of export participation, where participation in di¤erent export markets are considered as independent decisions after conditioning on a common marginal cost of production; Crucini and Davis (2016) consider the speed of adjustment of capital in the distribution sector; Ramanarayanan (2015) considers intermediate inputs in which heterogeneous producers face a plant-level irreversibility in the structure of inputs used in production; Arkolakis, Eaton, and Kortum (2012) consider the di¤erence between the adjustments in extensive and intensive margins of trade in an Eaton and Kortum (2002) framework. Accordingly, it is implied by the demand-side investigation in this paper that we do not need such supply-side complications in order to understand the puzzling di¤erence between macro elasticities of the two literatures.…”

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confidence: 99%

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Unifying Macro Elasticities in International Economics

Yilmazkuday

2017

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International trade studies have higher macro (Armington) elasticity measures compared to international finance studies. This observation has evoked not only mixed policy implications regarding tariffs and exchange rates but also mixed welfare gains from trade. Regarding the policy implications, this so-called international elasticity puzzle is solved in this paper by distinguishing between elasticities of substitution and price elasticities of demand that are connected to each other through expenditure shares. It is shown theoretically and confirmed empirically that the macro elasticity in international trade is a weighted average of the macro elasticity in international finance and the elasticity of substitution across products of foreign countries. It is implied that one can always find an elasticity of substitution across foreign countries that would be consistent with different macro elasticities in the two literatures; therefore, the puzzle is something artificial due to the way that the foreign products are aggregated at destination countries. Regarding the welfare gains from trade, the two literatures are shown to have the very same implications when international finance studies have a unitary macro elasticity of substitution between home and foreign products or unitary terms of trade. As opposed to the existing literature that has offered many supplyside solutions to the puzzle, the results in this paper are independent of the supply side and thus are consistent with any production structure.

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Section: Resultsmentioning

confidence: 98%

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confidence: 99%

Unifying Macro Elasticities in International Economics

Yilmazkuday

2017

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“…Given the recognised importance of hysteresis and irreversibilities in international trade (e.g. Baldwin, 1990;Ramanarayanan, 2017), the consequences for international trade patterns might be longlasting.…”

Section: Lasting Changes In Competitive Positions and Macroeconomic Cmentioning

confidence: 99%

How the COVID-19 Pandemic Is Reshaping the Trade Landscape and What to Do About It

Jean

2020

Intereconomics

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“…With this extensive margin, we can generate the sort of large aggregate Armington elasticity—the elasticity of substitution between imported and domestic goods—found in the data without assuming unusually large elasticities at the level of an individual firm. Ramanarayanan () considers the effects of import decisions on the Armington elasticity from a dynamic perspective. He builds a dynamic model in which entering firms make irreversible decisions about their import status in the presence of aggregate and idiosyncratic uncertainty and uses the model to contrast the effects of business‐cycle shocks and trade liberalizations on the Armington elasticity.…”

Section: Introductionmentioning

confidence: 99%

Using imported intermediate goods: Selection and technology effects

Gibson

Graciano

2017

Rev International Economics

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Producers that use imported intermediate goods tend to be much larger and more productive than others. Some of this is due to a selection effect: the most productive producers self-select into importing because only they can overcome the fixed costs of developing trade relationships with foreign input suppliers. Some of this is due to a technology effect: any given producer would have higher variable profits from operating the technology using imported intermediate goods.To account for the roles of these theoretical mechanisms, we develop a simple model of a competitive small open economy in which heterogeneous firms endogenously decide whether to use imported intermediate goods. The technology that uses imported intermediate goods is superior but requires a higher fixed cost of operating. The calibrated model captures the large performance advantage of importers and quantifies the selection and technology effects.

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Imported inputs, irreversibility, and international trade dynamics

Cited by 21 publications

References 32 publications

Unifying Macro Elasticities in International Economics

Unifying Macro Elasticities in International Economics

How the COVID-19 Pandemic Is Reshaping the Trade Landscape and What to Do About It

Using imported intermediate goods: Selection and technology effects

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