"Trade Liberalization and New Imported Inputs"
American Economic Review, Papers and Proceedings,
Volume: 99 | Issue: 2 | Pages: 494-500
Publication type: Journal article
In this article, we dissect changes in the composition of Indian imports following its 1991 trade liberalization to illustrate the potential scope for previously unavailable inputs to bolster the performance of domestic firms. The analysis reveals that trade reform spurred imports of previously unavailable products and varieties in many products that arguably can be characterized as important inputs for manufacturing firms. New imported inputs in large extent originated from more advanced countries and new imported varieties exhibited higher unit values relative to existing imports. These findings are consistent across narrow classifications of inputs and therefore indicative that India's trade liberalization relaxed the technological constraints faced by Indian firms under import substitution policies. This more descriptive analysis provides further confirmation of the importance of the extensive product margin in input trade.
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