SCIENCE@home

The Aggregate Importance of Intermediate Input Substitutability

A. Peter,Cian Ruane

Published 2023 in Social Science Research Network

ABSTRACT

We estimate long-run elasticities of substitution between intermediate inputs using data on Indian manufacturing plants. Exploiting India’s trade liberalization for identification, we find a plant-level elasticity of 4.7 between 8 broad categories of material inputs. In contrast, we find evidence of complementarities between energy, materials and services. We embed our elasticities in a general equilibrium model to quantify their importance. We find that the aggregate gains from closing the IndiaU.S. TFP gap in any one sector are on average 76% larger with our estimated elasticities, relative to a Cobb-Douglas benchmark. Losses from misallocation of intermediate inputs are 6 times larger. ∗Department of Economics, Princeton University; ap14@princeton.edu †International Monetary Fund; cruane@imf.org We would like to thank Pete Klenow for his continued support and invaluable guidance on this project, as well as Nick Bloom, Chad Jones and Monika Piazzesi for many helpful conversations. We are also very grateful to Petia Topalova and Amit Khandelwal for sharing their data with us. Thanks also for the insightful comments provided by the participants of the Stanford Macroeconomics Lunch, the Stanford Macroeconomics Workshop and the Stanford Development Tea. We gratefully acknowledge financial support from the Stanford Institute for Innovation in Developing Economies (SEED). Cian additionally acknowledges financial support from the Stanford Institute for Economic Policy Research (SIEPR). Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or its management.

PUBLICATION RECORD

CITATION MAP

EXTRACTION MAP

CLAIMS

  • No claims are published for this paper.

CONCEPTS

  • No concepts are published for this paper.

REFERENCES

Showing 1-66 of 66 references · Page 1 of 1

CITED BY

Showing 1-21 of 21 citing papers · Page 1 of 1