Abstract
This paper looks at the question of how import activities and productivity are related. Using detailed production and cost data from a panel of Mexican manufacturing plants between 1994 and 2003, the paper is able to differentiate between two types of imports, materials (or intermediate inputs) and machinery and equipment (or capital goods), and to separately identify self-selection and learning effects of each type of imports at the plant level. The key findings are that there is evidence of both self-selection into importing and learning-by-importing, but not all imports seem to matter for productivity. Not only more productive plants tend to become importers of machinery and equipment rather than materials, but plants that start importing machinery and equipment also experience an increase in productivity, while the same does not occur when plants start importing materials. There is also evidence of productivity gains following entry into export markets and complementarities between exporting, importing materials and importing machinery and equipment. These findings seem to suggest that capital goods from abroad are more likely to embody technological improvements than intermediate inputs.
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Notes
The years covered by the original datasets go up to 2007, however information for imported capital goods is not available from 2004 onwards.
In the rest of the analysis, information at the product level is not used as the main interest is on plant-level variables, such as productivity and trade status. However, an ever increasing strand of the trade literature suggests that multi-product firms may differ along several dimensions from single-product firms (see, for example, De Loecker et al., 2016, and Caselli et al., 2017). Therefore, as a robustness check, the production function estimation and the econometric analysis in the next section are augmented by including a dummy variable equal to one if a plant produces more than one product in a given year as an additional proxy for productivity. The dummy for multi-product plants turns out not to be related to productivity in any significant way and the main findings are not affected by its inclusion. The additional results are available upon request.
The price of a product-plant-year triplet is measured by lumping together the product varieties sold to both the domestic and export markets, thus assuming that varieties do not vary by market. As a robustness check, this assumption is dropped and the price of a variety is differentiated by market as well. Results are not affected by this assumption and are available upon request.
The trade status of a plant may potentially affect not only its productivity, but also its technology. Therefore, as a robustness check, the production function in Eq. (1) is modified by including plants’ trade status via interactions with the factors of production. The main results regarding self-selection into importing machinery and equipment and learning effects due to exporting and importing of machinery and equipment are not affected qualitatively, but the significance of the coefficients is stronger and further evidence is found in favour of self-selection into exporting. Additional results are available upon request.
As a robustness check, the productivity process is assumed to be affected by export and import shares instead of dummies for plants’ trade status. This implies a modification of both the estimation of the production function and the productivity regressions in the next section. The main findings are not affected as the results show that more imports of machinery and equipment have a positive effect on productivity, while more imports of materials have a negative or no effect on productivity. Results are available upon request.
The specifications based on the WLP and WLP-FE estimators include lagged capital and its square, lagged materials and its square and the interaction of lagged capital and materials as additional proxies for productivity. Moreover, these specifications instrument current labour and materials with the first and second lags of labour as well as the second lags of capital and materials.
Plants that export, import materials or import machinery and equipment in 1994, the first year in the sample, are not included in the respective figures. The qualitative results do not change when plant-year observations that stop trading internationally are eliminated from the sample in each figure.
As the relationship between plants’ trade status and productivity is the main interest of this paper, the trade-related variables are included in all specifications, as was done for the estimation of the production function.
As a robustness check, the second-order polynomial in lagged capital and materials has also been included in all these regressions and the results do not change qualitatively. The basic results are shown for a simpler comparison with the rest of the literature, but the additional results are available upon request.
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Acknowledgements
I thank Stefano Schiavo and two anonymous reviewers for their helpful comments. Special thanks go to Abigail Durán and Gerardo Leyva for granting access to INEGI data at the offices of INEGI in Aguascalientes and to all INEGI employees who provided assistance and answered all questions, in particular to Gabriel Romero, Otoniel Soto and Armando Arallanes. All errors are mine.
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Caselli, M. Do all imports matter for productivity? Intermediate inputs vs capital goods. Econ Polit 35, 285–311 (2018). https://doi.org/10.1007/s40888-017-0071-5
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DOI: https://doi.org/10.1007/s40888-017-0071-5