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

Mukherjee, Arijit; Liu, Yao

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Authors

ARIJIT MUKHERJEE Arijit.Mukherjee@nottingham.ac.uk
Professor of Industrial Economics

Yao Liu



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
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

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