I provide novel plant-level estimates of the elasticity of substitution between domestic and foreign suppliers within an input. Using rich Indian plant data that report input purchases separately by domestic and imported sources, I estimate an elasticity of 0.51, which implies complementarity between foreign and domestic sourcing. I show aggregation bias in elasticity by aggregating the same data across plants and estimating a higher elasticity. I provide conditions under which ignoring firm heterogeneity can cause this bias and show these conditions hold in my setting. I quantify the aggregate importance of this elasticity using an input-output general equilibrium model with product-level linkages. I show that complementarity substantially amplifies the aggregate effects of foreign shocks and alters the gains from removing distortions in input sourcing. The additional micro-to-macro amplification or attenuation through the complementarity depends on the origin of the micro shock. Finally, I show that suppressing firm heterogeneity in imports considerably amplify the additional GDP impact under complementarity.

We study how access to international markets shapes the local effects of external liberalization. Exploiting India’s 1990s liberalization that lowered prices in both manufacturing and agriculture, and the digitized road network, we show that input tariff declines spurred large increases in manufacturing output, firm entry, and employment, with substantially stronger effects in districts better connected to international markets. Output tariff reductions had no measurable impact. Better international access induced a sharper structural transformation within tradable sectors, with labor reallocating from agriculture to manufacturing and producer services, and increased migration from less to more internationally connected districts. We develop a quantitative spatial to understand the role of international access in the distribution of income from trade liberalization. Better international access by the median increases welfare by 9.8%. Investing in a road network targeting port connectivity significantly dampens spatial inequalities.

Recent shifts in global trade patterns have received a lot of attention, but the implications of these shifts for domestic value added in exports (DVAR) have so far been overlooked. This paper documents substantial increases in Viet Nam’s aggregate DVAR since 2018, reversing a long declining trend. Analysis using matched firm-level and customs data reveals that idiosyncratic US demand shocks had large positive effects on firm-level DVAR and output. Firms respond to the shocks by exporting more to both US and non-US markets, and their labor productivity increases, both that are consistent with the economies of scale. Firms also increase their use of domestic materials and reduce reliance on imported materials, suggesting sensitivity to implicit rules of origin. Finally, the paper highlights the role of firm ownership, with non-Chinese owned firms driving the increase in domestic value added.