Trade Adjustment and Productivity in Large Crises

Chicago Booth Research Paper No. 11-16

Chicago Booth Initiative on Global Markets Working Paper No. 62

62 Pages Posted: 28 Apr 2011 Last revised: 31 Jul 2012

Gita Gopinath

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brent Neiman

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 7, 2012

Abstract

We empirically characterize the mechanics of trade adjustment during the Argentine crisis using detailed firm-level customs data covering the universe of import transactions during 1996-2008. Our main findings are as follows: First, the extensive margin defined as the entry and exit of firms or of products (at the country level) plays a small role during the crisis. Second, the sub-extensive margin defined as the churning of inputs within firms plays a sizeable role in aggregate adjustment. This implies that the true increase in input costs exceeds that imputed from conventional price indices. Third, the relative importance of these margins and of overall trade adjustment varies with firm size. Motivated by these facts, we build a model of trade in intermediate inputs with heterogenous firms, fixed import costs, and round-about production to evaluate the channels through which a collapse in imports effects TFP in manufacturing. Measured aggregate productivity in the sector depends on within-firm adjustments to the varieties imported as well as the joint distribution of each firm's technology and the share of imports in its total spending on inputs. We simulate an imported input cost shock and show that these mechanisms can deliver quantitatively significant declines in manufacturing TFP.

Suggested Citation

Gopinath, Gita and Neiman, Brent, Trade Adjustment and Productivity in Large Crises (May 7, 2012). Chicago Booth Research Paper No. 11-16. Available at SSRN: https://ssrn.com/abstract=1824395 or http://dx.doi.org/10.2139/ssrn.1824395

Gita Gopinath

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brent Neiman (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/brent.neiman/index.html

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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