As intermediate inputs account for two-thirds of world trade, understanding the mechanisms driving this specific component of global trade and their implications in terms of welfare is crucial. The authors show that micro-data for foreign input spending patterns at the firm-level is key to quantifying the welfare consequence of input trade, as trade in intermediates allows firms to reduce their costs of production thereby benefiting the aggregate economy. In an application of this methodology to the French economy, it appears that the gains from input trade at the firm level are highly skewed: while the median French importer would see its unit costs increase by 11.2% if it lost access to international input markets, the 10% most affected firms would experience unit cost increases larger than 85%. Overall, input trade reduces the prices of manufacturing products by 27% and the aggregate price index by 9%.
By Joaquin BLAUM, Claire LELARGE, Michael PETERS