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Does Input-Trade Liberalization Affect Firms’ Foreign Technology Choice?

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  • Maria Bas
  • Antoine Berthou

Abstract

This paper studies the impact of input-trade liberalization on firms’ decision to upgrade foreign technology embodied in imported capital goods. Our empirical analysis is motivated by a simple theoretical framework of endogenous technology adoption, heterogeneous firms and imported inputs. The model predicts a positive effect of input tariff reductions on firms’ technology choice to source capital goods from abroad. This effect is heterogeneous across firms depending on their initial productivity level. Relying on India’s trade liberalization episode in the early 1990s, we demonstrate that the probability of importing capital goods is higher for firms producing in industries that have experienced greater cuts on tariffs on intermediate goods. Only those firms in the middle range of the initial productivity distribution have benefited from input-trade liberalization to upgrade their technology.

Suggested Citation

  • Maria Bas & Antoine Berthou, 2017. "Does Input-Trade Liberalization Affect Firms’ Foreign Technology Choice?," World Bank Economic Review, World Bank Group, vol. 31(2), pages 351-384.
  • Handle: RePEc:oup:wbecrv:v:31:y:2017:i:2:p:351-384.
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    Cited by:

    1. Bahar Baziki, Selva & Ginja, Rita & Borota Milicevic, Teodora, 2015. "Trade Competition, Technology and Labor Re-allocation," Working Paper Series, Center for Labor Studies 2016:1, Uppsala University, Department of Economics.
    2. Bas, Maria & Paunov, Caroline, 2019. "What gains and distributional implications result from trade liberalization?," MERIT Working Papers 003, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. repec:eee:respol:v:46:y:2017:i:5:p:939-955 is not listed on IDEAS
    4. repec:eee:inecon:v:111:y:2018:i:c:p:159-176 is not listed on IDEAS
    5. Maria Bas & Caroline Paunov, 2019. "What gains and distributional implications result from trade liberalization?," Post-Print halshs-02052739, HAL.
    6. Imbruno, Michele & Ketterer, Tobias D., 2018. "Energy efficiency gains from importing intermediate inputs: Firm-level evidence from Indonesia," Journal of Development Economics, Elsevier, vol. 135(C), pages 117-141.

    More about this item

    Keywords

    Input-trade liberalization; firms’decision to import capital goods; firm heterogeneity and Indian firm-level data;

    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

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