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This paper adds to the new literature on firms' direct sourcing of imported intermediate inputs. We address key gaps in the literature by examining the influence of source country characteristics on import prices, the import behaviour of Indian firms and empirical strategies to address source country selection bias, while using disaggregated import data at the firm, product and source country level. We offer a theoretical contribution which suggests that source characteristics affect firms' willingness to pay for imported inputs, particularly high‐quality differentiated inputs. Our unique and detailed data set of Indian manufacturers' imported inputs allows us to control for all firm and product characteristics to eliminate missing‐variable bias with fixed effects, and to correct for possible selection bias in firms' source country choices. Results indicate that source country characteristics matter. Import prices rise for products sourced from high‐income per capita countries, rise with distance and fall with GDP and remoteness (the latter a new finding suggested by our theory). High productivity firms that also export appear particularly willing to pay high prices for high‐quality inputs from specific source countries. Our results suggest that, apart from other consequences, restrictions on imported inputs harm firms' ability to upgrade product quality. [ABSTRACT FROM AUTHOR]

Recent heterogeneous firm literature has revised the basic assumptions of constant marginal costs; markets may thus be complements or substitutes. Using Chinese firm‐level data for 1998–2007, our study utilises the 2004 export tax rebate (ETR) cut as a quasi‐natural experiment to demonstrate how the domestic market may be a fall back for exporters when they encounter exogenous negative export shocks, leading to market‐switching behaviour and higher domestic sales. The market‐switching behaviour significantly intensifies the competition in the domestic market in the affected industries. This crowds out sales of non‐exporters and drives up the probability of market exit of non‐exporters. Consequentially, non‐exporters in industries affected by the negative export shock may enjoy a significantly larger productivity gain compared with their counterparts in other industries, as well as exporters in the same industries. Thus, the negative shocks to the export market result in an indirect pro‐competitive productivity gain for non‐exporters. [ABSTRACT FROM AUTHOR]

Convex vacancy creation costs shape firms' responses to trade liberalisation. They induce capacity constraints by increasing firms' costs of production. A profit maximising firm will therefore not fully meet the increased foreign demand, but serve only a few export markets. More productive firms will export to more countries and profit more from trade liberalisation. To get an effect of trade liberalisation on wage inequality, we need on‐the‐job search and convex vacancy creation costs because with linear costs trade liberalisation affects all wages in equal proportion. Furthermore, with convex vacancy creation costs, not all firms export to all foreign markets even if trade is fully liberalised. This implies that wage inequality under free trade is always higher than under autarky. [ABSTRACT FROM AUTHOR]

This paper studies how trade integration of both final output and intermediate input markets affected aggregate efficiency and welfare in the European Union (EU) during the period 2004–2012. The results suggest that aggregate efficiency gains from trade mainly occur through input switching effects within firms and output reallocation effects across firms. Moreover, welfare gains from trade are relatively smaller than aggregate efficiency gains, due to a decrease in domestic final varieties. [ABSTRACT FROM AUTHOR]

This paper studies the effect of credit constraints on the choice by small and medium‐sized enterprises to export goods of higher quality relative to their domestically sold output (quality differentiation). The empirical analysis employs detailed firm‐level data on product characteristics and credit scores. Credit constraints are found to be negatively associated with export quality differentiation. Firms reporting a deterioration of the credit score by a standard deviation are 36% less likely to pursue quality differentiation. The negative relation between credit constraints and quality differentiation is stronger for firms exporting to distant markets. [ABSTRACT FROM AUTHOR]

Abstract: Alternative perspectives on the structure of international trade have important implications for the evaluation of climate policy. In this paper, we assess climate policy in the context of three important alternative trade formulations. First is a Heckscher‐Ohlin model based on trade in homogeneous products, which establishes the traditional neoclassical view on comparative advantage. Second is an Armington model based on regionally differentiated goods, which is a popular specification for numerical simulations of trade policy. Third is a Melitz model based on monopolistic competition and firm heterogeneity. This heterogeneous‐firms framework is adopted in many contemporary theoretic and empirical investigations in international trade. As we show in this paper, the three alternative trade formulations have important implications for the assessment of climate policy with respect to competitive effects for energy‐intensive production (and hence carbon leakage) as well as the transmission of policy burdens across countries. [ABSTRACT FROM AUTHOR]

We study the impact of access to finance on exports using Chinese firm-level data. We distinguish two modes of external finance, namely bank loans and issuing stocks to shareholders. We not only consider the impact either of these has individually on export behaviour, but also their interaction. We build the two external sources, as well as internal finance, into a heterogeneous firm-type model, which allows us to investigate the relationship between financial constraints and firms' exports. We examine the model's predictions empirically using a comprehensive longitudinal firm-level data set from China. Our empirical results are consistent with the theoretical predictions. Firms who have more interest expenditure or can issue stocks to their shareholders have higher propensity to export and export more. Moreover, the more financial options a firm has, the better a firm performs in terms of export volume and export propensity. [ABSTRACT FROM AUTHOR]