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Product Cost-Share: a Catalyst of the Trade Collapse
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Product Cost-Share: a Catalyst of the Trade Collapse

Author

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  • Mattia Di Ubaldo

    (Department of Economics, University of Sussex, UK)

Abstract

I study the responsiveness of Slovenian trade during the collapse of 2008-2009 and shed light on channels that enhanced the sensitivity of international trade to the demand shock.The responsiveness of intermediate goods. Trade is found to be associated with the cost-share of inputs; i.e., imports of inputs accounting for a larger cost-share faced a more than proportionate drop in the downturn coupled with a more than proportionate rebound in the recovery. I hypothesise that this is the outcome of larger post-shock inventory adjustments, which higher cost-share intermediates are subject to. This rationale is supported theoretically by a simple (S,s) model of inventory management and, empirically, by reduced form estimations of the main model predictions. Moreover, products’ cost-share is found to be associated with an enhanced reaction of the frequency of shipments at the product level, a proxy for inventory adjustments. Conditioning the results on the type of firm ownership, i.e. intra-firm or arm’s length trade,does not reveal a differential response between the two organisational modes, except for imports of higher cost-share products for which intra-firm trade acted as further catalyst of the collapse.

Suggested Citation

  • Mattia Di Ubaldo, 2015. "Product Cost-Share: a Catalyst of the Trade Collapse," Working Paper Series 8015, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:8015
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    File URL: http://www.sussex.ac.uk/economics/documents/wps-80-2015-.pdf
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    More about this item

    Keywords

    Trade collapse; Product cost-share; Imports; Firm behaviour; Inventory adjustment.;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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