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

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  • Maria Bas
  • Antoine Berthou

Abstract

Foreign technology transfers play a key role in economic growth. This paper investigates the effects of input-trade liberalization on firms’ decision to upgrade foreign technology embodied in imported capital goods. We develop a theoretical model of endogenous technology adoption, heterogeneous firms and imported inputs. Assuming that imported intermediate goods and high-technology are complementary and the existence of technology adoption fixed costs, 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. Using firm-level data from India and imports of capital goods to measure high-technology, 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. Our findings also suggest that only those firms in the middle range of the productivity distribution have benefited from input-trade liberalization to upgrade their technology as predicted by the model. These empirical results are robust to alternative specifications that control for industry and firm characteristics, tariffs on capital goods, other reforms and alternative measures of technology.

Suggested Citation

  • Maria Bas & Antoine Berthou, 2013. "Does Input-Trade Liberalization Affect Firms' Foreign Technology Choice?," Working Papers 2013-11, CEPII research center.
  • Handle: RePEc:cii:cepidt:2013-11
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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. repec:eee:inecon:v:111:y:2018:i:c:p:159-176 is not listed on IDEAS
    3. repec:eee:respol:v:46:y:2017:i:5:p:939-955 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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