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Trade and Domestic Production Networks. National Bank of Belgium Working Paper No. 344

Tintelnot, Felix and Kikkawa, Ayumu Ken and Mogstad, Magne and Dhyne, Emmanuel (2018) Trade and Domestic Production Networks. National Bank of Belgium Working Paper No. 344. [Working Paper]

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    We use Belgian data with information on domestic firm-to-firm sales and foreign trade transactions to study how international trade affects firm efficiency and real wages. The data allow us to accurately construct the domestic production network of the Belgian economy, revealing several new empirical facts about firms’ indirect exposure to foreign trade through their domestic suppliers and buyers. We use this data to develop and estimate models of domestic production networks and international trade. We first consider a model of trade with an exogenous network structure, which gives analytical solutions for the effects of a change in the price of foreign goods on firms’ production costs and real wages. To examine how gains-from-trade calculations change if buyer-supplier links are allowed to form or break in response to changes in the price of foreign goods, we next develop a model of trade with endogenous network formation. We take both models to the data and compare the empirical results to those we obtain using existing approaches. This comparison highlights the relevance of data on and modeling of domestic production networks in studies of international trade.

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    Item Type: Working Paper
    Uncontrolled Keywords: Production Networks, Network formation, Indirect imports and exports, Gains from trade
    Subjects for non-EU documents: Countries > Belgium
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    EU policies and themes > External relations > international trade
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 29 Nov 2019 15:06
    Number of Pages: 105
    Last Modified: 29 Nov 2019 15:06

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