Intermediate Inputs, Firm Heterogeneity and Gains From International Trade

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Alexander, Patrick
theoretical , empirical , macroeconomics , international trade
This thesis studies the role of intermediate input goods in explaining international trade patterns and determining gains from trade based on heterogenous firms models. The first chapter provides a preview and literature review. In the second chapter, I extend two workhorse heterogenous firms trade models to incorporate intermediate inputs and value-added productivity differences across firms. This set-up yields a positive relationship between the international trade elasticity and the share of intermediate goods used in production. I test this relationship using trade and input-output data from the 1980s and 2000s, finding evidence which is consistent with the model's predictions. I then quantify the gains from trade based on this modified framework, finding values which are significantly higher than those from the standard models. In the third chapter, I extend a standard heterogeneous firms trade model by including sector-level productivity differences across production stages (intermediate and final). I then use input-output data from 2005 to explore the degree of cross-stage production specialization across countries. Based on the model and data, I find that the welfare gains from this margin are, on average, modest. For emerging economies, however, the gains are significantly higher than the average. In the fourth chapter, I explore the implications of the rising share of non-tradable services and rising share of intermediate inputs on the gains from trade based on a standard heterogeneous firms trade model. I use data from 1995 and 2011 to document and quantify these trends. Based on the model and data, I find that the negative impact of the rise of services and the positive impact of intermediate inputs growth roughly offset one another. I emphasize the role of intermediate inputs sectoral linkages in moderating these trends.
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