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DECTI Trade Seminar: Imported Intermediate Goods and Product Innovation: Evidence from India

Speaker: Murat Seker, The World Bank, joint with Daniel Rodriguez-Delgado
Abstract: In this study, we build a structural model of multi-product firms that illustrates how access to new foreign intermediate goods contributes to the introduction of new product varieties. We establish a stochastic dynamic model of firm evolution allowing firms to be heterogeneous in their efficiency levels. Introducing importing decision to this dynamic framework, we show that the effects of importing intermediate goods are twofold: i) it increases the revenues per each product created and ii) through the knowledge spillovers obtained from importing, firms get more likely to introduce new varieties. Calibration of the model to Indian data shows that the model can successfully explain the dynamics of product evolution and other moments related to importing and product distribution. Finally the comparison of autarky with trade equilibrium shows how liberalizing trade increases innovation performances and product growth.

For Information: Anna Regina Rillo Bonfield

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