Plants and Imported Inputs: New Facts and an Interpretation

Abstract

Beginning with Wilfred J. Ethier (1979, 1982), an important current of research has empha- sized gains to trade from the greater availability of intermediate inputs, as opposed to the greater availability of consumption goods emphasized by Paul R. Krugman (1979) and others. It has been standard in this literature to model input varieties as symmetric, differentiated horizon - tally but not vertically. In contrast, anecdotal accounts, especially from developing countries, often stress the importance of gaining access to high-quality inputs on the import market. 1 In theoretical discussions, the need to distinguish between the number of inputs and the quality of those inputs can be avoided by treating differ - ent qualities of a good as distinct varieties (see, e.g., Paul Romer 1994) or by redefining units of measurement. But in empirical work, one inherits the product categories and units in the data, and typically one must specify whether the availability-of-inputs mechanism is expected to operate through an increase in the number of input categories or through an increase in the quality of inputs within categories. Because of data constraints—in particular because of a lack of information on input and output prices in standard plant-level datasets—it has been dif - ficult to investigate the role of input-quality dif - ferences, and recent empirical work, notably by Christian Broda, Joshua Greenfield, and David Weinstein (2006) and Pinelopi K. Goldberg et