Foreign intermediate inputs, import intermediaries, and aggregate productivity

Abstract

Access to foreign intermediate inputs raises firm and aggregate productivity. This paper documents that domestic wholesalers provide such access by importing almost half of the foreign inputs used by Chilean firms. A calibrated model of trade and distribution shows that relative to the case where domestic firms can only buy directly from foreign suppliers, aggregate productivity under wholesaler importers is 7.5 percent higher. Wholesaler importers play such a large role because they allow medium and small domestic producers to buy from large (efficient) foreign suppliers. Moreover, increases in the efficiency of the wholesaler importing sector have a larger effect on aggregate productivity than similar reductions in tariffs or in the fixed cost of importing an intermediate input. Also, the presence of wholesaler importers doubles the effect of a trade liberalization on aggregate productivity.