This paper studies the misallocation of intermediate inputs in China’s firm-leveldata, eliminating which would increase the average industry’s gross output by 2.93%.We document evidence of pre-pay and financial frictions on intermediate inputs behindthe misallocation. We build these...

In the two-country Melitz (2003) model, unilateral trade liberalization is often cast as a reduction of iceberg transportation costs and wages are determined by a linear outside sector. We show that welfare results reverse when wages adjust and trade frictions are revenue-generating tariffs. --...