The effects of state-level foreign manufacturing imports on domestic inter-state and intra-state sales in the U.S.A

United States is the largest importer of goods in the world. Imports of capital goods, industrial machinery, and automotive parts account around 90 percent of total imports. Imports of intermediate inputs are often the catalyst for increased domestic economic growth. Using the well-known structural gravity model and Commodity Flow Survey (CFS) data on domestic trade in the United States for the years 1993, 1997, 2002, 2007, 2012 and 2017, we analyze the impact of foreign imports of manufacturing goods by the states on their domestic sales: both intra-state and inter-state sales. We find fairly strong support for our hypothesis that foreign imports by a state promote both sales to itself and to other states; but the effect is stronger for inter-state sales than to intra-state sales. We carry out a series of robustness checks, and the qualitative results remain the same. The results of this paper has important policy implications and suggest that elimination of the transaction costs in international trade are likely to have positive effect on the U.S. economy.