The Intermediate Inputs
The Intermediate Inputs
Intermediate inputs are partly finished goods which move from one industrial process to another before a finished good is produced (Baptist & Hepburn, 2012). Steel, car components, and sugar are examples of intermediate goods. Services used to produce final products are also referred to as intermediate input. The value of intermediate goods on productivity cannot be underestimated. The industrial revolution, for instance, owes a great debt of gratitude to intermediate goods because this era coincided with a dramatic fall in the prices of material and energy costs.
As a component of productivity, intermediate goods have remained a significant part of cost control and profitability for companies which need them to produce final products. Policy makers are increasingly appreciating the importance of intermediate input in the economies as seen by trade liberalization efforts focused on this area (Amiti & Konings, 2007). Countries around the world are engaged in a concerted effort to reduce tariffs on intermediate goods. This will in turn increase the quality of final goods produced within the country. For instance, countries might reduce tariffs on compressors thus increasing competition and quality of imports while significantly improving the quality of the refrigerators made from the compressors.
According to Baptist & Hepburn (2012), the main criticism on intermediate input has centralized on the treatment of the goods as semi-finished goods without much economic significance. Though the Gross Domestic Product (GDP) of a country does not include intermediate goods, they remain integral for the overall economic performance. This is because they are used to produce final or finished products which are included in the GDP. Intermediate goods are also exported to other countries thus strengthening the country’s balance of payments. The exclusion from the economic function does not diminish the significance of intermediate goods to the economy.
Baptist, S. & Hepburn, C. (2012). Intermediate goods and economic productivity. CCCEP. Retrieved from http://www.cccep.ac.uk/Publications/Working-papers/Papers/110-119/WP112-inputs-and-economic-productivity.pdfAmiti, M. & Konings, J. (2007). Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia. The American Economic Review. 97(5), 1611-1638.