Does the Use of Imported Intermediates Increase Productivity? Plant-Level Evidence

This paper examines whether importing intermediate goods improves plant performance. While addressing the issue of simultaneity of a productivity shock and the decision to import intermediates, we estimate the impact of the use of foreign intermediates on plants' productivity using plant-level Chilean manufacturing panel data. We found that switching from being a non- importer to being an importer of foreign intermediates can improve productivity by 2.3 to 22.0 percent. We also investigate the plant dynamic decisions to import, invest, and exit. The results show that having imported last year substantially increases the probability of importing this year, providing the evidence for sunk start-up costs of importing. We also found that importers accumulate more capital and are less likely to exit than non-importers, which indicates that importing intermediates may play an important role in reallocating resources across heterogeneous plants.