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This paper studies a model of heterogeneous importers that incorporates
static cross-country interdependence and dynamic dependence in firmlevel
decisions. Using data on Chinese importers between 2000–2006, I
find that source countries are complementary, i.e., the benefit of importing
from one country increases as a firm imports from more countries. Accounting
for this complementarity, I estimate the sunk costs of importing,
which make establishing relationships with new suppliers costlier than
maintaining existing ones. I illustrate how the sunk cost estimates depend
on cross-country interdependence and model specifications, such as the
inclusion of export decisions.
