Export Prices, Imported Inputs, and Domestic Supply Networks

We study the impact of import intensity in production of exporters and their suppliers on exchange rate pass-through to export prices. For identification, we use rich micro-level databases – domestic firm-to-firm sales and firm-product-level customs – from a large emerging market, Turkey. We find that ignoring suppliers’ import reliance misses nearly half of the picture: while exporters’ degree of reliance on own imported goods is 24%, this number reaches nearly 40% once their suppliers are taken into account. A higher degree of import reliance by exporters’ suppliers significantly increases pass-through to export prices by inducing higher imports-driven marginal costs passing over to downstream exporters. Moreover, exporters with a higher concentration in their domestic supply networks have a higher pass-through.