The role of imports in the intensive margin of exports

We investigate the impact of imports of intermediate inputs on export value and scope among Spanish regular two-way trade manufacturing firms over the period 1997-2018. After controlling for firm characteristics and addressing endogeneity using an IV strategy, we find that firms that import intermediate inputs from non-EUEFTA countries enhance the volume and scope of their EU15 exports. The impact was higher when firms imported intermediate inputs from the high-income non-EUEFTA countries before the 2008 financial crisis. However, since 2008, purchase of intermediate inputs from the low-income non-EUEFTA countries become as relevant as those from high income countries. We interpret this apparently surprising result as the optimal response of Spanish firms to diversify their import portfolio as a consequence of an increase in the product upgrading and quality improvement of cheaper intermediate inputs from developing countries after the crisis.