Trade liberalization and new imported inputs

Abstract

Understanding the role of international trade in explaining vast differences in productivity across countries remains a key question in international economics. Recent literature emphasizes the micro-foundations underlying this relationship. One strand of literature highlights how new export opportunities and toughness of competition generate aggregate productivity gains by reallocating resources from less to more productive firms (Marc J. Melitz (2003), Marc J. Melitz and Gianmarco Ottaviano (2008)). Trade also increases aggregate productivity through improvements in firm productivity (Nina Pavcnik (2002)), which have recently been linked to the reallocation of resources across products within firms (Andrew B. Bernard, Stephan J. Redding and Peter K. Schott (2006)) and use of imported inputs (Mary Amiti and Jozef Konings (2007)). The latter relate to the idea that trade provides domestic firms access to cheaper and previously unavailable inputs. The idea that international trade benefits countries by providing access to new product