Does input trade liberalization boost downstream firms' exports? Theory and firm-level evidence

• Published in: Journal of international economics 2013-07, Vol.90 (2), p.391-402
• Main Authors: Chevassus-Lozza, Emmanuelle, Gaigné, Carl, Le Mener, Léo
• Format: Article
• Language: English
• Subjects: Agricultural industry; Agricultural production; Agricultural trade; Comparative studies; Economic models; Economic theory; Economics and Finance; Estimating techniques; Export performance; Exports; Heterogeneous downstream firms; Humanities and Social Sciences; Input tariffs; Liberalization; Productivity; Tariffs; Trade liberalization; Western Europe
• ISSN: 0022-1996; 1873-0353
• DOI: 10.1016/j.jinteco.2013.02.004

We analyze the impact of input tariffs on the export status and export performance of heterogeneous processing firms. Using a theoretical model with downstream firms exhibiting different levels of productivity, we show that lower input tariffs may increase the export sales of high-productivity firms at the expense of low-productivity firms and may decrease the probability of firms entering foreign markets. We compare the predictions of the theoretical model with firm-level data from the French agrifood sector by developing a two-stage estimation procedure that uses an equation for selection into export markets in the first stage and an export's equation in the second stage. The liberalization of agricultural trade appears to favor the reallocation of market share from low- to high-productivity agrifood firms. In addition, our results suggest that, whether lower input tariffs increase total export sales (and jobs), a large fraction of the least productive exporting firms may lose from an additional decrease in agricultural input tariffs. •Downstream firms are heterogeneously impacted by input trade liberalization.•A large fraction of exporting firms lose from input trade liberalization.•Input trade liberalization reduces the probability of exporting in the agrifood industry.