En collaboration avec Joaquin Blaum, Claire Lelarge, Michael Peters
We use French microdata to test an ubiquitous property of commonly used firm-based models of im-porting. According to these models, firm size should have no e˙ect on the allocation of expenditure across a common set of sourcing countries. We show that this homotheticity property is soundly rejected by the data: larger firms concentrate their import spending on their top varieties, holding the sourcing strategy fixed. To rationalize this finding, we propose a novel model of importing with quality choice that features (i) a complementarity between firm productivity and input quality and (ii) heterogeneity across countries in their ability to produce high quality inputs. We provide empirical support for these two elements using data on import prices, firm size, and the allocation of expenditure across countries.
JEL Codes: F11, F12, F14, D21, D22, D24.
Keywords: trade in intermediate inputs, firm heterogeneity, firm size, non-homothetic.