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04/03/2016

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Ian Gipson

By using concrete numerical evidence from the Hungarian economy, Halpern, Koren, and Szeidl, are able to concisely and effectively argue that limiting imports would not help the domestic economy. In fact, their findings are the opposite. They can demonstrate that by decreasing import costs aggregate manufacturing productivity is actually increased by nearly 6% between 1992 and 2002. Though originally examined at a microeconomic level, this finding has great connection to macroeconomic concepts. Primarily, it shows that by allowing firms in an industry to decreases their costs by importing input materials, they can improve their production by a measurable amount. In connection to the GDP equation, this allows for consumption to increase as the lower prices in this industry would allow for spending in other areas as well as allowing firms to invest more both in themselves or in other entities. Though it also means an increase in imports, this is likely less than the effect of the other two factors. This would lead to an increase in aggregate demand and therefore an increase in GDP and a growing economy. Assuming a scenario where imports are limited, the opposite effect would likely take place. The production prices would remain at a higher level, people still need to consume manufactured products at the same rate meaning they cannot direct their wealth to consume or invest more in other areas. In conclusion, while it might protect certain participants in the domestic economy, it decreases efficiency overall and can harm the economy overall by preventing growth.

Abigail Summerville

Using data from Hungary, the authors argue that firms see a substantial increase in productivity when they import inputs. They saw that imported inputs effect productivity differently depending on how close of a substitute the imported good is to the domestic good, and the difference in pricing between the two. When the imported input is an almost perfect substitute for the same domestically-produced good, the firm should buy more import inputs. They also found that current or previously foreign-owned firms benefit from imported inputs more than non-foreign-owned firms. Two factors account for this trend: foreign firms "have know-how about foreign markets and can access cheap suppliers abroad", and foreign firms have lower import costs because their fixed cost schedule is lower than that of domestic firms. They advise a tariff cut because it would increase firm imports and firm and aggregate productivity. The initial participation of producers in importing also effects firm and aggregate productivity, with an initially high amount of participation causing larger gains from a tariff cut. If a country were to cut tariffs to increase input imports, the firms in that country would benefit, and so would the consumers of that country who get to buy that good at a cheaper price, and lastly the foreign firm they're buying the inputs from would benefit. However, as we've discussed in class, the domestic workers would bear the cost because they'd get fired if a domestic firm decides that importing inputs from a foreign country has a higher comparative advantage than using domestic inputs.

plus.google.com/112908212571325157694

After analyzing data in Hungary, this article examines how an increase in imports affects the productivity of firms. In a baseline test, the data showed that after increasing imports, the overall productivity does increase. But after more closely examining the data, they saw a relationship between imperfect substitution and foreign-owned firms. Foreign owned firms have a 24% benefit compared to domestic firms so they should increase their spending on inputs. Foreign owned firms also experience a lower cost than domestic firms, which would increase their spending. And because they have lower costs of imports, then there would be a lower cost in the selling of their products, increasing consumption. By looking at this in the aggregate output model, an increase in consumer spending would occur, thus raising aggregate demand. But at the same time if imports increased, it would shift the aggregate demand curve in the opposite direction. So depending on the magnitude of the change in consumer spending and imports, the aggregate demand curve will either increase, decrease, or stay the same.
Just a small aside–more than half of the GOP voters in the Wisconsin primaries and nearly half of democrats say that foreign trade costs the U.S. jobs. This would be interesting to see tested using models in class to see if half of Wisconsin is actually right.

Jack Miller

Davis Alliger

In the article, the author discusses findings in a study of Hungarian business growth. The study finds that the Hungarian manufacturing sales have grown from 21% to 80%. This is a massive structural shift in the Hungarian economy towards manufacturing. The research also estimates that there have been approximately a 21% increase in productivity in the Hungarian economy. Of this 21%, 5.9% of the growth has come from increased exports.The study analyzes the wide positive effects to not only growth and stimulation of an economy, but also increase quality of goods in the economy. The study also found that if substitute goods were a slightly lower price that there would be a large shift in purchasing towards the cheaper good, regardless of origin of production. This study clearly shows that increased liberalization of trade leads to increased production in the entire economy due to advantaged production of certain goods that leads to trade. Hungary may have also seen extreme returns due to the increased strength of economies of surrounding countries such as Germany. Germany's strong economy leads to strengthening of the Hungarian economy due to trade. Clearly, any protective trade measures taken by the Hungarian government would have severely damaged economic growth.

James Brady

Halpern, Koren, and Szeidl argue in the article that importing foreign inputs can lead to an increase in productivity on the domestic scale in countries like Hungary. The authors refer to the ideas of quality and imperfect substitution to back up their argument of increased productivity. The authors found from their research that foreign owned firms benefited more from importing cheaper inputs and that firms benefited more when the foreign, substitute inputs were similar to the domestic inputs. Perhaps the foreign firms are rewarded with more success when importing foreign imports because they already have had experience in these foreign markets. This allows them to seek out the cheapest inputs possible while still maintaining the quality of the inputs. If the inputs are cheaper than the production costs of the firm’s are lower. Cheaper production costs allow the firms to make more money and therefore increase both consumer and investing spending, leading to an increase in GDP and long run economic growth. Therefore, importing cheaper foreign imports not only raises the productivity of the economy but also sustains long run growth. This entire article and the argument is based off the economic principles of opportunity cost and comparative advantage. For example, the US is very good at producing aircraft machinery and technology and China is better at producing consumable goods. The US has a lower opportunity cost so it should trade its airplane machinery to China so they can build planes. In return the US will receive inputs from which they have a higher opportunity cost than China. Trade allows countries to specialize in production, and trading inputs among global economies allows specialized countries to increase productivity, GDP, and long run growth simultaneously.

Julia Wilson

According to the research conducted by Halpern, Koren, and Szeidl, limiting imports would not benefit the domestic economy. The article suggests that there is a significant positive correlation between imported inputs and productivity. If one were to model an equation for productivity measure either by increased revenue or quantity, imported inputs are a big factor. The researchers consider the “base case” by setting the level of imported inputs to zero and one hundred percent and then comparing. The increase in productivity is pretty significant: “In our baseline case, increasing the fraction of tradable goods imported by a firm from zero to 100% would increase revenue productivity by 22% and quantity productivity by 24%.” However productivity is measured and all other variables held constant, imported inputs increased productivity by one fifth. This one variable alone has a dramatic effect on productivity. In a productivity equation, the correlation coefficient for the variable representing imported inputs would be high. If the government were to limit imports, this would greatly effect productivity. For instance, suppose we set the imported inputs variable to zero. In the productivity equation, this would eliminate a factor that has the potential to boost productivity by about a fifth.

One point that I found particularly interesting in this article was the significance of ownership. Foreign-owned firms benefit from imported inputs much more than domestic-owned firms. If we were to split the imported inputs variable into two variables, we would see that the foreign-owned firms variable would have a higher correlation coefficient in the productivity equation. The researchers found that “firms that have been foreign-owned benefit by about 24% more than purely domestic firms from each $1 they spend on imports.” This is also a significant finding. Foreign-owned firms benefit about a fourth more than domestically owned.

Ultimately, it does not appear that limiting imports would benefit the economy but rather hinder growth. Since imported inputs have the ability to increase quantity productivity by 24%, the increase in quantity would probably shift the aggregate supply curve outwards to the right. This shift would most likely lead to a fall in the price level, and cause the consumption variable in the GDP equation in increase.

Danielle Spickard

By looking at evidence from the Hungarian economy, Halper, Koren, and Szeidl argue that increasing imports is beneficial to the domestic economy. First looking at the microeconomic level, studies show that improved access to foreign inputs has had a positive impact on firms’ productivity in multiple countries such as Chile, India, and Indonesia. “Imported inputs affect firms’ productivity in two channels”: whether they have higher price-adjusted quality, and whether they are imperfect substitutes for domestic products. Results reveal that increasing the fraction of tradable goods imported increases productivity. From 1992-2003, Hungary increased their manufacturing sales from 21% to 80% due to the fact that foreign firms have a certain “know-how” about foreign markets and can obtain cheaper suppliers, therefore being able to gain more on imports. When firms are more productive, they have a greater ability to increase their consumption and possibly their ability to make loans. This increases both C and I in the real GDP equation, which therefore increases the real GDP of the economy. On an ending note the authors state that “the magnitude of redistributive losses due to import substitution depends strongly on both the extent of the substitution and the initial level of tariffs.”

Jane Chiavelli

In this article, economics scholars preform a study on Hungary's economy and the effect of imports. Their research concludes that "imported inputs boost productivity" and furthermore, "the positive effects are particularly strong for foreign-owned firms." To analyze the import effect, they examine quality of the imported inputs and substitution. The more perfect the imported inputs can substitute domestic inputs, the greater effect imports have on productivity. Foreign-owned firms benefit most from the input effect because they are knowledgable about global markets and they have greater access to cheaper international suppliers.

In class, we discussed how trade benefits everyone involved. Therefore, limitations to trade such as import tariffs could have an unintended negative effect on a country's economy. While imports decrease GDP, it is evident from the article that imports have a positive affect on productivity in Hungary's economy, which increases GDP at a greater rate according to the data. Therefore, increased imports have the potential to shift the aggregate demand curve outwards, increasing aggregate demand in the domestic economy. This raises the aggregate price level, which will in return, raise the demand for exports from a country's market. All in all, trade is an important aspect of the global economy and should not be limited.

Caroline Birdrow

The research presented in this article offered a holistic and comprehensive approach to understanding the effects of tariffs on productivity. Not only did the researchers find that increased imports of inputs lead to higher productivity, but they also qualified this claim by discussing other mitigating factors. These factors include whether or not a firm is foreign or domestic, use of inputs, fixed costs, imperfect substitution, quality, and presence of liberalization policies. Each of these plays an important role in the interaction of tariffs with a firm’s overall performance. As we have discussed in class, many politicians tend to generalize complex issues when debating and proposing policy changes and strategies. They do not consider, or mention, the other related issues (which the researchers claim are extremely relevant). Additionally, this research demonstrates that the models we use in class truly are simplified versions of reality. Yes, the models indicate that increased inputs can positively affect GDP, but they do not offer any information on these outside factors. Thus, these basic models are useful but not all-encompassing.

Yo Han(John) Ahn

Halpern, Koren, and Szeidl analyzes evidence from Hungary to explain the exceptional effects importing inputs have on not only productivity but economic growth. The article acknowledges the substantial heterogeneity in firm's import patterns, with half of the firms not even importing at all. Using this information as well as the fact that firms’ spending on imports is concentrated on a few core products, the writers developed a model of firms that used differentiated inputs to produce a final good. In each period of the model, firms paid a fixed cost for each variety they chose to import. The productivity gains that resulted from this model were remarkable, arriving to a conclusion that imported inputs are significant for the firm performance in the Hungarian economy. After quantifying the contribution of imports to productivity growth and determining that import-related gains are due to the increased volume and number of imported inputs, it was evident that imports contributed substantially to economic growth.

The article explored and challenged our understanding of the relationship between international trade and economic growth. Throughout reading, I kept thinking about the production possibilities frontier in micro and how trade would be used to produce outside of the limitations of one firm. In many ways, Halpern, Koren, and Szeidl further prove just how beneficial the implications of importing inputs are.

Guilherme Baldresca

Halpern, Koren, and Szeidl make the case for free trade by analyzing the Hungarian economy, and coming to the conclusion that a higher share of imported goods increases a firm's productivity, which evidently impacts long-term economic growth and the population's well-being. They found that increasing the share of imported goods for a given firm increases their revenue productivity by 22% and their quantity productivity by 24%. Their model also permits for heterogeneity in importing patterns existing, recognising that half of the firms do not import at all. They also note that foreign-owned companies not only import more, but are also more benefited by importing than domestically-owned ones. This opens room for policy discussion, in which perhaps easing trade tariffs can be paired with less restrictive foreign direct investment policies.

This study takes a clear side in one of the most contended debates in the 2016 election cycle: free trade. Populist politicians as Donald Trump and Bernie Sanders have brought the issue to the media spotlight, criticising current US trade policy for being too free. While clearly this is a very nuanced issue with several difficult implication, the evidence overwhelmingly states that the general population is better-off with free trade than without it. Reducing trade would increase the price of all goods, as not only labor becomes more expensive but other inputs' prices spiral up, which is clearly not beneficial to consumers. This causes them to have less money and spend less, which then hurts companies and job creation, defeating the very purpose of a protectionist trade policy.

Caleigh Wells

Hungary's economic benefit from importing foreign goods is extremely interesting. I could expect an article wherein the study derives that the lower price of imported goods would benefit the economy, but the act of importing according to this study leads to an increase in productivity, especially for foreign-owned firms. This was surprising to me until it was explained that foreign-owned firms would possess a greater knowledge about finding cheap suppliers abroad, and therefore the difference in price between domestic and foreign imports for them is greater, so the productivity gap can be wider.

Of all our articles so far this semester, this was one of the more difficult to understand, but also supplied rewarding information. I appreciated the fact that it required so much knowledge of trends and vocabulary that we've learned throughout the term to understand the findings. Additionally, the concept of a shifting aggregate supply curve is one of my favorite topics from the semester, and so a focus on different import prices as another function of shifting that supply curve is an interesting explanation for a factor in GDP that is more likely to be overlooked when considering shifting curves.

Elliotemadian

"The productivity effects of importing inputs: evidence from Hungary" written by László Halpern, Miklós Koren, and Adam Szeidl is an exploration of the effects of imported inputs on overall firm productivity. Their claim from the start is that there is a large productivity increase from the importing of inputs.
It makes sense that foreign-owned firms would benefit from foreign imports. It seems logical that international companies would have a larger command of the international trade market compared to a domestic company. This is important to note for Hungary, as the article illustrates, because their foreign companies control 80% of the markets in Hungary.
It is also interesting that the authors note how tariff cuts would generously increase productivity. I would have never considered that because Hungary already has low tariff rates, they have implicitly high activity from foreign owned companies, which it has been seen increases their economy. Of course, this implies that by enacting a tariff cut, they would increase substantially their own firms productivity. I found it interesting, though, that this hinges on the quality of the imported good versus the domestic input.
This article was very enlightening to me. It makes intuitive sense in many ways, but also, it surprises me that importing an input could actually drastically increase a producers' productivity. Perhaps in many ways, since this is mostly the case for foreign companies, this is a result of not having to develop new methods in every new country that a firm opens in. Overall, however, this article makes a strong case for the evidence of exports and imports as an indicator for growth.

Alex Shields

The main idea of this piece is that importing inputs has a positive impact on an economy's productivity. In the author's case study, they found that boosting the use of imported inputs could raise revenue productivity by as much as 22% and quantity productivity by as much as 24%. Their continued study of the benefits of foreign firms importing of goods compared to domestic firms further proves the benefit of importing for an economy. Their study then found that imports accounted for nearly 25% of the productivity gain in the Hungarian manufacturing sector. The authors then studied the benefits of tariff cuts on productivity finding that as long as companies across the economy use imports, a significant tariff cut will result in a significant boost in productivity. This entire article is counterevidence against the fallacy that foreign trade is bad for the US economy. The only major question I have is how the differences between the Hungarian and United States economy would effect these findings?

Tony Du

In their article, Halpern, Koren, and Szeidl explore the effects of importing on productivity in Hungary. They developed a model to test the influence of imports. What they found was that importing inputs created a noticeable increase in productivity. Furthermore, they found that imports played a large role in economic growth in Hungary and that tariff cuts increased domestic productivity. The authors argue that free trade promotes economic growth, and are proponents of trade policy that promotes imports.
We discussed GDP as a measure of the sum of consumption, investment, government spending and exports minus imports. According to a strict definition of our model, an increase in imports would lead to a decrease in GDP. However, the authors argue that the costs saved from imports and the subsequent increase in productivity would outweigh the initial direct decrease. Limiting imports would not increase GDP; it would actually hurt the economy.

John Broderick

Based on the article of Hungary and what we had discussed in class it has become evident that limiting the import of inputs is a not a great idea. The idea of limiting inputs is to force firms to buy more domestic goods, which in theory would put more money into GDP. This is due to the money being saved from going overseas, which would now be given to domestic firms. The problem with this scenario is that the only reason why there is international trade is due to comparative advantage. We import from those who have the comparative advantage of producing a good or service, so we get it for cheaper prices. If there were to be import restrictions then firms would be forced to buy more expensive domestic products that are not necessarily better than those produced overseas. This will cause the firms products to increase in price drastically. Although the money saved from imports had stayed in the domestic economy, consumers are now forced to spend more on one good. This would leave them with less money to spend on other goods. In class we had said that the amount of money we saved from imports that went into consumption actually was counteracted by the lack of money consumers had after buying the now more expensive good. This would cause the overall GDP to fall.
The article on Hungary had shown the evidence behind this idea, when it showed higher economic growth after tariff cuts. There was also the increase productivity when the firms started to import goods. Therefore based on this evidence, it is not a good idea to restrict imports due to the positive benefits imports have on the GDP.

Mary Hampton McNeal

This Microeconomic Insights article explores how importing inputs of production facilitates economic growth in Hungary. Although many Hungarian firms do not import foreign inputs, those that do see significant increases in production, according to Halpern, Koren, and Szeidl. When tariffs and other importing barriers are relaxed in conjunction, the increase in productivity is particularly significant. Interestingly, foreign firms in Hungary see larger productivity gains from the use of imported inputs, which the authors suggest could be due to greater efficiency in the production process.

Perhaps the greatest take-away from this article is that greater access to foreign inputs for production does not harm the domestic economy, but rather leads to growth and productivity gains for firms. The article even addresses how the negative impact on domestic input suppliers is mitigated because overall demand for inputs increases due to the increased productivity. Overall, this article supplies compelling evidence in favor of greater usage of foreign imports that makes a lot of recent political discourse—namely, how we must “win the trade war” and limit foreign imports—seem foolish.

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