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Firm Size, Quality Bias and Import Demand
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Firm Size, Quality Bias and Import Demand

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  • Lelarge, Claire
  • Blaum, Joaquin
  • Peters, Michael

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 generates a non-homothetic import demand system. We provide empirical support for this and other predictions of this theory.

Suggested Citation

  • Lelarge, Claire & Blaum, Joaquin & Peters, Michael, 2019. "Firm Size, Quality Bias and Import Demand," CEPR Discussion Papers 13700, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13700
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    Cited by:

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    2. Cali,Massimiliano & Ghose,Devaki & Montfaucon,Angella Faith Lapukeni & Ruta,Michele, 2022. "Trade Policy and Exporters’ Resilience : Evidence from Indonesia," Policy Research Working Paper Series 10068, The World Bank.
    3. Ron H. Chan & Edward Manderson & Fan Zhang, 2022. "Indirect Energy Costs and Comparative Advantage," Economics Discussion Paper Series 2206, Economics, The University of Manchester.
    4. Ignatenko, Anna, 2024. "Competition and Price Discrimination in International Transportation," Discussion Paper Series in Economics 6/2024, Norwegian School of Economics, Department of Economics.
    5. Ha, Le Thanh & Dung, Hoang Phuong & Thanh, To Trung, 2023. "Bribery, global value chain decisions, and institutional constraints: Evidence from a cross-country firm-level data," International Economics, Elsevier, vol. 173(C), pages 119-142.
    6. Antrà s, Pol & Chor, Davin, 2021. "Global Value Chains," CEPR Discussion Papers 15908, C.E.P.R. Discussion Papers.
    7. Ardelean, Adina & Lugovskyy, Volodymyr, 2023. "It Pays to be big: Price discrimination in maritime shipping," European Economic Review, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    Trade in intermediate inputs; Firm heterogeneity; Firm size; Non-homothetic import demand; Quality-productivity complementarity;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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