Technological Change, Trade in Intermediates and the Joint Impact on Productivity
AbstractThis paper examines the interdependence between innovation and imports of intermediates, and their joint impact on productivity. We do so by developing a quantitative model with heterogeneous firms and international trade where firms can invest in R&D and source inputs internationally. Innovating firms on average become more productive, thereby enabling them to cover the fixed costs of sourcing foreign inputs, which in turn also has a benign impact on measured productivity. Using Norwegian firm-level data on R&D and trade in intermediates, we structurally estimate the model and find that both imports and R&D investment play a key role in explaining firm-level productivity growth. Moreover, the estimated returns to R&D are significantly lower after controlling for the complementarity between R&D investments and imports. We exploit the introduction of an R&D tax credit scheme in Norway in 2002, which lowered the marginal cost of R&D substantially. The estimated structural model can explain most of the observed increase in trade in intermediates as more firms started to innovate, underscoring the quantitative importance of our theoretical mechanism. Moreover, one fifth of measured productivity growth among new innovators came from increased foreign sourcing, rather than technology upgrading, illustrating how trade can amplify productivity gains. An implication of our work is that lower input trade barriers promote technological change. Hence, our work offers a new mechanism through which imports increase productivity, which may help explain why a number of studies find firm-level productivity gains associated with input trade liberalization.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8884.
Date of creation: Mar 2012
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-EFF-2012-03-28 (Efficiency & Productivity)
- NEP-INO-2012-03-28 (Innovation)
- NEP-INT-2012-03-28 (International Trade)
- NEP-SBM-2012-03-28 (Small Business Management)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Carlo Altomonte & Tommaso Aquilante & Gábor Békés & Gianmarco I. P. Ottaviano, 2014.
"Internationalization and Innovation of Firms: Evidence and Policy,"
CEP Special Papers
032, Centre for Economic Performance, LSE.
- Carlo Altomonte & Tommaso Aquilante & Gábor Békés & Gianmarco I.P. Ottaviano, 2013. "Internationalization and innovation of firms: evidence and policy," Economic Policy, CEPR & CES & MSH, vol. 28(76), pages 663-700, October.
- Murphy, Gavin & Siedschlag, Iulia, 2012. "The Effect of Real Exchange Rate Changes on Labour Productivity Growth," Papers WP439, Economic and Social Research Institute (ESRI).
- María D. Parra & Inmaculada Martínez-Zarzoso, 2014. "Imported intermediate inputs and Egyptian exports: Exploring the links," Working Papers 2014/09, Economics Department, Universitat Jaume I, Castellón (Spain).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.