Trade and Domestic Production Networks

62 Pages Posted: 8 Oct 2018

See all articles by Felix Tintelnot

Felix Tintelnot

University of Chicago Department of Economics

Ayumu Ken Kikkawa

University of British Columbia (UBC) - Sauder School of Business

Magne Mogstad

Statistics Norway; IZA Institute of Labor Economics

Emmanuel Dhyne

National Bank of Belgium

Multiple version iconThere are 2 versions of this paper

Date Written: October 2018

Abstract

We use Belgian data with information on domestic firm-to-firm sales and foreign trade transactions to study how international trade affects firms' unit cost and the consumer's real wage. We show theoretically that the gains from trade depend on domestic firm-to-firm linkages. Furthermore, we develop a tractable model of endogenous network formation, allowing firm-to-firm connections to form or break in response to import price changes. Quantitatively, we find that for small import price changes, alternative models that assume a roundabout production structure, despite falsely implying that all firms are connected within one link, yield similar predictions for the change in the real wage to the model that fits the actual linkages between firms. For large changes in the price of foreign goods, both the existing network structure and the endogeneity of the connections between firms are found to be quantitatively important.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Tintelnot, Felix and Kikkawa, Ayumu Ken and Mogstad, Magne and Dhyne, Emmanuel, Trade and Domestic Production Networks (October 2018). NBER Working Paper No. w25120. Available at SSRN: https://ssrn.com/abstract=3262355

Felix Tintelnot (Contact Author)

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Ayumu Ken Kikkawa

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Magne Mogstad

Statistics Norway ( email )

N-0033 Oslo
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Emmanuel Dhyne

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
4
Abstract Views
96
PlumX Metrics