Problem
This question is related to the findings in the following paper:
Fiorini, M., San?lippo, M., and Sundaram, A. (2021) "Trade Liberalization, Roads and Firm Productivity." Journal of Development Economics, 153: 102712
• Explain which firms import intermediate goods from abroad and whether they should acquire this intermediate good producer or not.
• Comment on the overall and distributional benefits of the road infrastructure improvement on the welfare effect of trade liberalization.
• Suppose we also study the effect of trade liberalization on Ethiopian firms, where the bilateral trade costs between Ethiopia and the rest of the world are reduced. What is the effect of trade liberalization on firms and welfare?
• Describe and illustrate a mechanism to explain how some firms improve their own productivity level, following an improvement of road infrastructure in their location.