Trade, foreign inputs and rms' decisions: Theory and Evidence

Abstract

We investigate the e ect of di erent channels through which input trade liberalization a ects rms' decisions such as whether to produce or shut down and whether to sell on the foreign market. The main contribution of this paper is to develop a trade model with heterogeneous rms, that reproduces di erent mechanisms through which the access to foreign inputs a ects the performance of domestic rms. Firms producing in intensive imported intermediate industries have lower marginal costs and thus, they are more competitive. These rms have both a higher probability of surviving and of exporting. The domestic and export selection processes are a ected by the access to high quality-cheaper foreign inputs. We also provide empirical evidence in support of these theoretical predictions based on plant-level panel data from Chile (1990-1999) and Argentina (1992-2001).

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Cite this paper

@inproceedings{Bas2009TradeFI, title={Trade, foreign inputs and rms' decisions: Theory and Evidence}, author={Mar{\'i}a Carmen Bas}, year={2009} }