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Firm efficiency and Input market integration Trade versus FDI

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  • Michele Imbruno

Abstract

This paper highlights the crucial role played by international access to intermediate inputs to explain firm-level performance, via two channels simultaneously: trade and FDI. We develop a simple theoretical model showing that trade integration of input market entails an efficiency improvement within firms able to import (gains from input switching) and an efficiency decline within other firms (losses from domestic input availability). At the same time, FDI integration of input market implies non-importers’ efficiency enhancement (gains from input switching) and some ambiguous effects on importers’ efficiency (due to additional losses from foreign input availability). Using firm-level data from the Chinese manufacturing sector over the period 2002-2006, we find some results coherent with our theoretical predictions.

Suggested Citation

  • Michele Imbruno, 2015. "Firm efficiency and Input market integration Trade versus FDI," FIW Working Paper series 154, FIW.
    • Handle: RePEc:wsr:wpaper:y:2015:i:154
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    Cited by:

    1. Michele Imbruno & Rosanna Pittiglio & Filippo Reganati, 2015. "FDI, Intermediate Inputs and Firm Performance: Theory and Evidence from Italy," Discussion Papers 2015-15, University of Nottingham, GEP.
    2. Grover,Arti Goswami & Imbruno,Michele, 2020. "Using Experimental Evidence to Inform Firm Support Programs in Developing Countries," Policy Research Working Paper Series 9461, The World Bank.
    3. Luke Emeka Okafor & Mita Bhattacharya & Harry Bloch, 2017. "Imported Intermediates, Absorptive Capacity and Productivity: Evidence from Ghanaian Manufacturing Firms," The World Economy, Wiley Blackwell, vol. 40(2), pages 369-392, February.

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    More about this item

    Keywords

    Heterogeneous firms; Trade liberalization; FDI; Intermediate inputs; Productivity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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