Trade and Domestic Production Networks

60 Pages Posted: 22 Feb 2019 Last revised: 30 Jun 2020

See all articles by Emmanuel Dhyne

Emmanuel Dhyne

National Bank of Belgium

Ayumu Ken Kikkawa

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

Magne Mogstad

Statistics Norway; IZA Institute of Labor Economics

Felix Tintelnot

University of Chicago Department of Economics

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Date Written: June 28, 2020

Abstract

We examine how many and what kind of firms ultimately rely on foreign inputs, sell to foreign markets, and are affected by trade shocks. To capture that firms can trade indirectly by buying from or selling to domestic firms that import or export, we use Belgian data with information on both domestic firm-to-firm sales and foreign trade transactions. We find that most firms use a lot of foreign inputs, but only a small number of firms show that dependence through direct imports. While direct exporters are rare, a majority of firms are indirectly exporting. In most firms, however, indirect export is quantitatively modest, and sales at home are the key source of revenue. We show that what matters for the transmission of foreign demand shocks to a firm’s revenue is how much the firm ultimately sells to foreign markets, not whether these sales are from direct or indirect export.

Suggested Citation

Dhyne, Emmanuel and Kikkawa, Ayumu Ken and Mogstad, Magne and Tintelnot, Felix, Trade and Domestic Production Networks (June 28, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-25, Available at SSRN: https://ssrn.com/abstract=3339620 or http://dx.doi.org/10.2139/ssrn.3339620

Emmanuel Dhyne

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Ayumu Ken Kikkawa

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

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Magne Mogstad (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway

IZA Institute of Labor Economics

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

Felix Tintelnot

University of Chicago Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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