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Learning Between Buyers and Sellers Along the Global Value Chain

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Moynihan Institute of Global Affairs

Trade, Development and Political Economy


Swapnika Rachapalli 

Post Doctoral Research Associate

Princeton University’s International Economics Section

This paper analyses learning between buyers and sellers as a new channel through which international trade affects product introduction across different production stages within firms. Using detailed firm level data from the Indian manufacturing census, I find that (i) 45% of multi-product firms produce at least one product pair that is connected in the Input-Output matrix, (ii) 30% of new products added by firms every year are either upstream or downstream to products previously produced by them, and (iii) exogenous increases in upstream export market access cause firms to add new products that are downstream to their previous production sets. I attribute this effect to firms learning from their buyers about downstream products during their transactions. To analyze the effects of trade policy on firm scope, I build a dynamic quantitative general equilibrium model of Global Value Chains with knowledge spillovers arising from buyer-seller linkages along the value chain. Potentially multi-product and multi-stage firms in the model invest in R&D to increase their product sets, and benefit from knowledge spillovers from domestic and foreign markets. Trade policy counterfactuals show that cross-stage product innovation decreases as the economy liberalizes due to convergence in technology levels across countries in general equilibrium.

Swapnika Rachapalli is a Post Doctoral Research Associate at Princeton University’s International Economics Section. In July 2022 she will join University of British Columbia’s Sauder School of Business as an Assistant professor. Her research interests are at the intersection of International Trade, Growth, and Development. Her current projects focus on understanding the role of trade for the diffusion of technology across borders. She received her Ph.D. from the University of Toronto in 2021.

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