Title

Imported Intermediate Inputs and Domestic Product Growth: Evidence from India

Author(s)

Pinelopi Goldberg Pinelopi Goldberg (Princeton University)

Amit Khandelwal Amit Khandelwal (Columbia GSB)

Nina Pavcnik Nina Pavcnik (Dartmouth College)

Petia Topalova Petia Topalova (IMF)

Abstract

New goods play a central role in many trade and growth models. We use detailed trade and firm-level data from a large developing economy - India - to investigate the relationship between declines in trade costs, the imports of intermediate inputs and domestic firm product scope. We estimate substantial static gains from trade through access to new imported inputs. Accounting for new imported varieties lowers the import price index for intermediate goods on average by an additional 4.7 percent per year relative to conventional gains through lower prices of existing imports. Moreover, we find that lower input tariffs account on average for 31 percent of the new products introduced by domestic firms, which implies potentially large dynamic gains from trade. This expansion in firms' product scope is driven to a large extent by international trade increasing access of firms to new input varieties rather than by simply making existing imported inputs cheaper. Hence, our findings suggest that an important consequence of the input tariff liberalization was to relax technological constraints through firms? access to new imported inputs that were unavailable prior to the liberalization.

Creation Date

2009-09

Section URL ID

CEPS

Paper Number

192

URL

https://gceps.princeton.edu/wp-content/uploads/2017/01/192goldberg.pdf

File Function

Jel

C010, E200, E370, F140, L100

Keyword(s)

Intermediate Inputs, Firm Scope, Multi-product Firms, Product Growth, Gains from Variety, Endogenous Growth, Trade Liberalization, India

Suppress

false

Series

3