New Imported Inputs, New Domestic Products

Abstract

We study how new imported inputs a¤ect the introduction of new domestic products. To this purpose, we assemble a novel data set covering 25 EU countries over 1995-2007 and containing information on domestic production and bilateral trade for the universe of products. We develop a procedure to identify new domestic goods and new imported inputs, while dealing with the complications raised by the yearly changes in the commodity classi…cations. Using this novel data, we …rst corroborate Goldberg et al.'s (2010a) …nding that new imported inputs have a large positive e¤ect on the introduction of new goods. Then, we move a step ahead and investigate the mechanisms behind this e¤ect. To this purpose, we construct novel estimates of quality for all input varieties imported by each country. We …nd the e¤ect of new imported inputs to be increasing in their quality and decreasing in their price, conditional on quality. Finally, we provide novel evidence on the characteristics of new goods. In particular, we show that new products are upgraded, as they sell at higher prices and possess higher quality than existing goods. Overall, our results suggest that new imported inputs foster the introduction of new and better products, by enabling countries to access cheaper or higher-quality intermediates from abroad.JEL codes: F1.

On firms’ product space evolution: the role of firm and local product relatedness

“…Finally, firms active in international markets may be more likely to innovate, as trade can be regarded as the flow of extra-regional knowledge (Boschma and Iammarino, 2009). On the one hand, importers may access new, better quality and more suitable inputs (Krishnan and Ulrich, 2001;Goldberg et al, 2009;Colantone and Crino`, 2014). On the other hand, exporters may dramatically be pushed to innovate by their own foreign customers (Egan and Mody, 1992;Goh, 2005;Salomon and Shaver, 2005;Baldwin and von Hippel, 2011;Hahn and Park, 2011;Bratti and Felice, 2012;Lo Turco and Maggioni, 2015).…”

Trade, import competition and productivity growth in the food industry

“…A growth in market competition may stimulate firms to reduce their x-inefficiences or even lead the less productive firms to leave the market (Melitz, 2003;Melitz and Ottaviano, 2008). Other important channels consider the increased availability of foreign intermediate inputs with lower price or higher quality (Colantone and Crinò, 2011) and their effects on technological innovation (Grossman and Helpman, 1991), as well as the effects of a greater market size due to scale economies and selection effects (Helpman and Krugman, 1985;Melitz and Ottaviano, 2008). In what follows we focus our attention on the first and the last of the above channels to motivate our empirical exercise, considering the most recent extension of the Krugman (1981) monopolistic competition trade model in presence of firms heterogeneity.…”

“…A final issue addressed in Table 3 consists in trying to isolate the effect of import competition in final products, the mechanism highlighted by Melitz and Ottaviano (2008), from the one related to the increased availability of foreign intermediate inputs with lower price or higher quality (see Altomonte et al 2008;Colantone and Crinò, 2011). In order to do that, we make use of the classification by Broad Economic Categories (BEC) to differentiate between intermediate and final imported foods (see Olper and Raimondi, 2008).…”

Endogenous Border Times

“…On the other hand, pooling them together does not make it possible to establish the source of delays, what governments can do to facilitate trade or to properly measure the impact of policy on efficiency. This is important because imports affect productivity (see, e.g., Pavnick, 2002;Shor, 2004;Fernandes, 2007;Amiti and Konings, 2007;Kashara and Rodrigue, 2008;Topalova and Khandelwal, 2011); exports (see, e.g., Kasahara and Lapham, 2013;Bas and Strauss-Kahn, 2014); product scope (see, e.g, Goldberg et al, 2010;Colantone and Crino, 2014); and product quality (see, e.g., Fernandes and Paunov, 2013;and Bas and Strauss-Kahn, 2015).…”