Importing after exporting

In this paper, we uncover a novel fact about the relationship between exporting and importing. Using a comprehensive database of Argentine firms, we find that exporting to a new destination increases the probability of a firm beginning to import from that market within the lapse of one year. We develop a model of import and export decisions to study the effect of productivity and import costs on the intensive and extensive margins of importing. Comparing these predictions with the observed effect of reaching new export destinations, we argue that export entry in a market reduces import costs in that market. We show that importing after exporting is stronger in distant markets and in situations where importing involves non-homogeneous and rarely imported goods. Furthermore, the effect on the probability of importing remains, regardless on whether the firm survives in the export market. Taken together, our results suggest that firms gain knowledge on -or establish links with- potential suppliers after export entry, which reduces the costs associated with searching for import sources. The effect of export entry on sourcing costs has implications that go beyond offering insights on importing: according to our quantitative exercise, import costs fall 53% in a given destination after export entry (from US$ 49,600 to US$ 26,600), and the estimated import cost savings increase for distant markets outside the Americas.