The Connection between Imported Inputs and Exports: The Importance of Strategic Interdependence

Mukherjee, Arijit; Liu, Yao

Abstract

Ignoring strategic interactions among final goods producers, the extant theoretical literature shows that lower costs of imported inputs increase the exports of the final goods using those inputs. Hence, it does not explain the empirically relevant positive relationship between the costs of imported inputs and the export of the final goods. We use a simple Cournot duopoly (i.e., duopoly quantity competition) with homogeneous products to show that if the exporters differ in input coefficients, lower costs of imported inputs may increase or decrease the exports of the final goods. Thus, we argue that strategic interdependence among the exporters can be an important factor for the positive relationship between lower costs of imported inputs and the export of the final goods. We further show that a lower cost of imported inputs may reduce the consumer surplus, total profits of the exporters, and world welfare. We also show the implications of a Bertrand duopoly (i.e., duopoly price competition) with horizontal product differentiation for our analysis.

Citation

Mukherjee, A., & Liu, Y. (2023). The Connection between Imported Inputs and Exports: The Importance of Strategic Interdependence. Games, 14(1), Article 6. https://doi.org/10.3390/g14010006

• Journal Article Type: Article
• Acceptance Date: Jan 3, 2023
• Online Publication Date: Jan 9, 2023
• Publication Date: Jan 9, 2023
• Deposit Date: Jan 5, 2023
• Publicly Available Date: Jan 10, 2023
• Journal: Games
• Electronic ISSN: 2073-4336
• Publisher: MDPI AG
• Peer Reviewed: Peer Reviewed
• Volume: 14
• Issue: 1
• Article Number: 6
• DOI: https://doi.org/10.3390/g14010006
• Keywords: Applied Mathematics; Statistics, Probability and Uncertainty; Statistics and Probability
• Public URL: https://nottingham-repository.worktribe.com/output/15714688
• Publisher URL: https://www.mdpi.com/2073-4336/14/1/6
• Additional Information: Accepted: 3 January 2023 / Published: 9 January 2023