Firm productivity and importing: Evidence from Chinese manufacturing firms

This paper investigates various aspects of the relationship between firm productivity and importing for a large sample of Chinese firms between 2002 and 2006 making a distinction between the origin, variety, skill and technology content of imports. Employing a random effects probit model and a propensity score matching with difference-in-differences (PSMDID) approach and treating imports as endogenous in our measure of total factor productivity (TFP) (De Loecker 2007), we test the self-selection and learning-by-doing hypotheses. Our results show evidence of a bi-directional causal relationship between importing and productivity. Although importing firms tend to be more productive before entering the import market, once they start importing firms experience significant productivity gains for up to two years following entry. We also find evidence of learning effects following the decision to import, which is stronger when import starters source their products from high-income economies, import a wider variety of products and import products with a higher skill and technology content. A number of robustness checks confirm the learning effects of importing on TFP growth.