Productivity and the decision to import and export: Theory and evidence

This paper develops an open economy model with heterogeneous final goods producers who simultaneously choose whether to export their output and whether to use imported intermediates. Using the theoretical model, we develop and estimate a structural empirical model that incorporates heterogeneity in productivity, transport costs, and other costs using Chilean plant-level data for a set of manufacturing industries. The estimated model is consistent with many key features of the data regarding productivity, exporting, and importing. We perform a variety of counterfactual experiments to assess quantitatively the positive and normative effects of barriers to trade in import and export markets. These experiments suggest that there are substantial gains in aggregate productivity and welfare due to trade. Furthermore, because of import and export complementarities, policies which inhibit the importation of foreign intermediates can have a large adverse effect on the exportation of final goods.