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

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  • C Veermani

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.

Suggested Citation

  • C Veermani, 2009. "Impact of Imported Intermediate and Capital Goods on Economic Growth: A Cross Country Analysis," Working Papers id:1968, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:1968
    Note: Institutional Papers
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    References listed on IDEAS

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    1. Keller, Wolfgang, 2000. "Do Trade Patterns and Technology Flows Affect Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 14(1), pages 17-47, January.
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    13. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    14. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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