Firm Size, Quality Bias and Import Demand

Claire Lelarge published her article “Firm Size, Quality Bias and Import Demand“, co-authored with Joaquin Blaum and Michael Peters, in the Journal of International Economics 2019, Volume 120: 59-83.

Abstract: Commonly used firm-based models of importing imply that firm productivity should have no effect on the allocation of expenditure across a common set of sourcing countries. Using French data, we show that this homotheticity property is soundly rejected: larger firms concentrate their import spending on their top varieties, holding the sourcing strategy fixed. To rationalize this finding, we propose a novel model of importing that features (i) a complementarity between firm productivity and input quality and (ii) heterogeneity across countries in their ability to produce high-quality inputs. This model implies that large firms bias their spending towards countries with a comparative advantage in producing high-quality inputs and hence generate a non-homothetic import demand system. We provide empirical support for this and other predictions of this theory.

By |2023-11-06T18:20:15+01:0017 December 2019|Comments Off on Firm Size, Quality Bias and Import Demand

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