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Impact of Imported Intermediate and Capital Goods on Economic Growth: A Cross Country Analysis

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  • C Veermani
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    Abstract

    Knowledge accumulation in the richer countries provides them with comparative advantages in higher productivity products. The countries that import the higher productivity intermediate products and capital equipments produced in the richer countries, however, derive benefits from knowledge spillovers. The empirical analysis in this paper shows that what type of intermediate goods and capital equipments a country imports and from where it imports indeed matters for its long-run growth. Using highly disaggregated trade data for a large number of countries, we construct an index (denoted as IMPY) that measures the productivity level associated with a country’s imports. Using instrumental variable method (to address the endogeneity problems), we find that a higher initial value of the IMPY index (for the year 1995) leads to a faster growth rate of income per capita in the subsequent years (during 1995–2005) and vice versa. The results imply that a 10% increase in IMPY increases growth by about 1.3 to 1.9 percentage points, which is quite large.

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    Bibliographic Info

    Paper provided by eSocialSciences in its series Working Papers with number id:1968.

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    Date of creation: May 2009
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    Handle: RePEc:ess:wpaper:id:1968

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    Related research

    Keywords: Knowledge; Accumulation; Spillovers; Higher; Productivity; Imports; Intermediate and Capital Goods; Economic Growth; Productivity;

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    1. Wolfgang Keller, 1999. "How Trade Patterns and Technology Flows Affect Productivity Growth," NBER Working Papers 6990, National Bureau of Economic Research, Inc.
    2. Acemoglu, D. & Zilibotti, F., 1998. "Information Accumulation in Development," Papers 652, Stockholm - International Economic Studies.
    3. Christian Broda & Joshua Greenfield & David Weinstein, 2006. "From Groundnuts to Globalization: A Structural Estimate of Trade and Growth," NBER Working Papers 12512, National Bureau of Economic Research, Inc.
    4. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
    5. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    6. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
    7. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self Discovery," CEPR Discussion Papers 3356, C.E.P.R. Discussion Papers.
    8. Murphy, Kevin M. & Shleifer, Andrei, 1997. "Quality and trade," Journal of Development Economics, Elsevier, vol. 53(1), pages 1-15, June.
    9. Tibor Besedes & Thomas Prusa, 2006. "Ins, outs, and the duration of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 266-295, February.
    10. Keller, Wolfgang, 2002. "International Technology Diffusion," CEPR Discussion Papers 3133, C.E.P.R. Discussion Papers.
    11. Garbis Iradian, 2007. "Rapid Growth in Transition Economies: Growth-Accounting Approach," IMF Working Papers 07/164, International Monetary Fund.
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