AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
Inventories, Integration, Productivity, and Welfare
AEA Papers and Proceedings
(pp. 611–17)
Abstract
We augment a heterogeneous firm trade model with rich logistic frictions—order costs and delivery times—that differ by source and tariffs to evaluate how trade influences the aggregate economy. These frictions lead importers to order larger amounts less frequently, resulting in an importer inventory premium. As trade barriers fall, firms import more frequently, leading to lower inventories and more efficient distribution, releasing resources for consumption. With inventories, the gains from trade are larger. However, these long-run differences are small compared to the transition around a possible tariff increase, as firms stockpile in advance of a possible tariff increase.Citation
Alessandria, George, Shafaat Yar Khan, and Armen Khederlarian. 2025. "Inventories, Integration, Productivity, and Welfare." AEA Papers and Proceedings 115: 611–17. DOI: 10.1257/pandp.20251088Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- F11 Neoclassical Models of Trade
- F13 Trade Policy; International Trade Organizations
- F14 Empirical Studies of Trade
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity