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Imported Inputs and Productivity

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Author Info
László Halpern
Miklós Koren
Adam Szeidl

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Abstract

How do imported inputs affect firm productivity? We address this question by estimating a structural model of importers using product-level data for all Hungarian manufacturing firms during 1992-2003. We have three main findings. (1) Imported inputs have large productivity effects: increasing the share of imported goods from 0 to 100 percent increases productivity by 11 percent. (2) About 60 percent of this gain is due to imperfect substitution, i.e., the idea that combining different inputs is "more than the sum of the parts." This is consistent with Hirschman's (1958) view about the importance of complementarities along a production chain for economic development. (3) Tariff cuts have a highly non-linear effect on productivity, due to firm entry into import markets for new varieties. This non-linearity can rationalize differences between estimated tariff effects in different studies, and shows how firm level analysis helps understand macro facts. Our structural approach can also be used for counterfactual policy analysis, and to study the different implications of the quality and complementarity mechanisms.

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Paper provided by Center for Firms in the Global Economy in its series CeFiG Working Papers with number 8.

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Date of creation: 01 Apr 2009
Date of revision: 01 Apr 2009
Handle: RePEc:cfg:cfigwp:8

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  1. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June. [Downloadable!] (restricted)
  2. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May. [Downloadable!] (restricted)
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  3. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June. [Downloadable!] (restricted)
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  5. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May. [Downloadable!] (restricted)
  6. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, vol. 87(1), pages 106-118, August. [Downloadable!] (restricted)
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  7. Caselli, Francesco & Wilson, Daniel J., 2004. "Importing technology," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 1-32, January. [Downloadable!] (restricted)
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  8. Jeffrey A. Frankel & David Romer, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June. [Downloadable!] (restricted)
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