Research Seminar

New Importer Dynamics and the Effects of Trade Liberalization — Victor Gimenez-Perales

02 Nov 2021


Victor Gimenez-Perales (Kiel Institute)


Firms that start importing source only a small share of their intermediate inputs abroad and expand this share over time. I show that a model of multi-input firms with a sunk import entry cost cannot replicate these new importer dynamics. Introducing an adjustment cost per input to the sunk-cost model creates a hysteresis effect at the intermediate input level and reconciles the model with the data. I use a calibrated version of the sunk-cost model and the extended model to identify the effects of trade liberalization. The simulations show that a decrease in import costs or import prices with the new importer dynamics generates larger aggregate welfare and productivity gains, but these gains take more time to materialize. Moreover, in the extended model, the productivity gains affect a wider range of firms. 


Victor Gimenez-Perales (Kiel Institute)


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