Imported Intermediates, Absorptive Capacity and Productivity: Evidence from Ghanaian Manufacturing Firms

This paper analyses whether the use of imported intermediates improves productivity using firm-level panel data of manufacturing firms in Ghana covering the period between 1991 and 2002. This includes examining the importance of absorptive capacity in enhancing the productivity gains from imported intermediates. We propose lagged relative productivity as a new measure of absorptive capacity (ABC). For any given period, ABC is defined as the natural logarithm of a firm’s total factor productivity in the previous period relative to the firm’s initial total factor productivity. An alternative measure of ABC considers real value added per worker in lieu of total factor productivity. Overall, we find that firms with high levels of absorptive capacity derive productivity gains from the contemporaneous and prior use of imported intermediates, particularly for firms operating in the input-intensive industries. Our findings are robust to different specifications of the base model and different estimation techniques.