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Importing and Productivity: An Analysis of South African Manufacturing Firms

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Abstract

This paper uses firm-level data from company tax declarations to analyse the complementary relationship between direct access to imported intermediate inputs and manufacturing firm productivity in South Africa. We provide support for the hypothesis of firm learning by importing. Our results show that importing is associated with higher productivity among South African manufacturing firms. In addition, importing a wider variety of intermediate inputs is associated with higher firm productivity, which is consistent with the idea that imported input varieties complement domestic varieties in production. We do not find strong evidence that imports from advanced economies are more relevant for productivity than are imports from emerging economies—which is contrary to expectations that the superior technology that is embedded in advanced economy imports would boost firm productivity.

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Fig. 1

Source: Authors’ elaboration on SARS CIT and transaction trade data

Fig. 2

Source: Authors’ elaboration on SARS CIT and transaction trade data

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Notes

  1. The South African government imposed quotas on imports of Chinese apparel in 2007 and 2008 in an attempt to curb job losses in the apparel industry. This was followed by increases in tariff rates on apparel imports to the WTO bound rate.

  2. Some caution is required in interpreting the data on trade in value added, as the estimates are strongly influenced by the database that is used. Farole (2016) estimates a 14% share of foreign value added in South Africa’s gross exports with the use of the Eora GVC database (https://worldmrio.com/unctadgvc/), whereas the OECD (2018) estimates a much higher 21–24% share over the period 2011–2014 with the use of its Trade in Value Added (TiVA) database.

  3. Such emphasis on the role of importing is not new. Endogenous growth models emphasize the static and dynamic gains from importing new varieties of inputs and show that these contribute to a country’s growth via gains in productivity and by fostering the development of new varieties of domestic products (Broda and Weinstein 2006; Goldberg et al. 2010).

  4. Firms’ performance is measured in their study as the number of varieties of products that are produced domestically.

  5. Kasahara and Rodrigue (2008) on Chilean firms, and Bas and Strauss-Kahn (2014) on French firms adopt a similar approach.

  6. Khandelwal (2010) proposes a more sophisticated measure of quality accounting for prices and market shares at the product level. Both Colantone and Crinò (2014) and Bas and Strauss-Kahn (2015) adopt this measure to account for the ‘quality’ mechanism in their analyses.

  7. A notable exception is the work by Abreha (2019), who finds sizeable impacts of importing on productivity for Ethiopian manufacturing plants. Foster-McGregor et al. (2014) estimate labour productivity (sales per employee) premia between 79 and 113 per cent for two-way traders and between 36 and 64 per cent, respectively, for exporter-only and importer-only firms with the use of a cross-section of firm data for 19 sub-Saharan African countries. Unlike their study, we use a panel of firm data and measure productivity with the use of estimates of total factor productivity (TFP).

  8. The transaction database includes firm-level information on the value, quantity, and destination/origin on trade flows at the 8-digit level of the Harmonized System (HS) over the period 2009–2014. To ensure consistency in product classification over time, the HS8-digit data were converted to the 6-digit level of the 2007 revision of the HS classification.

  9. According to the World Bank Enterprise data for South Africa in 2007, indirect exporters and indirect importers make up 6.5 per cent and 16–18.5 per cent, respectively, of manufacturing firms. The World Bank Enterprise data shares of direct exporters and importers are broadly consistent with our shares that use the SARS data and range from 17 to 23% for exporters and 19–25 per cent for importers, depending on the sample weights that are used. The average share of direct exporters and importers over the 2009–2013 period based on the SARS data is calculated at 24 and 25 per cent, respectively (Edwards et al. 2018).

  10. The slight decline to just under 23,000 in 2013 reflects the late submission by some firms of their income tax statements to SARS. In a robustness analysis in “Appendix” Table 6, we ensure that our baseline results are robust to the exclusion of 2013.

  11. Participation in direct importing is unexpectedly low in the Motor vehicles industry. A possible explanation is that international trade in motor vehicles is conducted through subdivisions within the motor industry conglomerates as opposed to directly by the plant.

  12. The correlation coefficient across industries of the fraction of exporters and importers is 0.9.

  13. Bernard et al. (2018) find that the 3 percent of US manufacturing firm importers that sourced 11 or more products from 11 or more countries accounted for approximately 76 per cent of import value in the US for 2007. The top 5 percentiles of manufacturing firms by total trade (exports plus imports) in their data accounted for 94.9 per cent of the total value of imports. In contrast, the equivalent share for South African manufacturing firms that import is 60 per cent.

  14. The estimates do not take into account firm exit as it is not possible to determine whether missing firm observations in the income tax database denote firm exit or failure to submit a tax return. See Kreuser and Newman (2018) for details on the estimates of the TFP.

  15. We don’t have information on the educational qualifications of works. Consequently, we measure the skilled labour share as the share of workers within a firm who earn a salary of more than 20,000 Rands per month. Capital is measured as the sum of the value of fixed assets (property, plant, and equipment) that is reported by each firm.

  16. Having an estimated parameter (TFP) as the dependent variable might in fact introduce heteroskedasticity (Saxonhouse 1976).

  17. Background analysis of the data indicates that 43 per cent of the firms did not change importing status over the period.

  18. If we assume that all intermediate goods are symmetrically produced, then this ratio is equal to the range of domestic inputs that are purchased relative to the total range available (Kasahara and Rodrigue 2008). The variable is calculated as the (cost of sales—direct imports)/cost of sales. This indicator will over-estimate the domestic share in costs for firms that use indirectly imported intermediate inputs in production.

  19. High-income countries are defined according to the 2015 World Bank classification of countries by income. High-income economies are those with a gross national income per capita of US$12,736 or more. We also use OECD membership as our indicator of advanced economies. The results are very similar.

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Acknowledgements

We would like to thank the editor, Lawrence J. White, participants at the Economic Society of South Africa conference, 2015, and the South African National Treasury/UNU-WIDER/South African Revenue Services Policy seminar on ‘Firm-level analysis’, 2016 and to the Italian Trade Study Group Meeting at IMT, Lucca, Octover 2016, for their useful comments. Support from UNU-WIDER is gratefully acknowledged. The South African National Research Foundation (NRF) (Unique Grant No.: 93648/93660) provided additional support to cover subsistence and travel.

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Authors and Affiliations

  1. School of Economics, University of Cape Town, Cape Town, South Africa

    Lawrence Edwards

  2. Department of Economics and Statistics “Cognetti de Martiis”, University of Turin and IOB, University of Antwerp, Torino, Italy

    Marco Sanfilippo

  3. Department of Economics, University of Auckland, Auckland, New Zealand

    Asha Sundaram

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  1. Lawrence Edwards
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  2. Marco Sanfilippo
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Correspondence to Marco Sanfilippo.

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Appendix

Appendix

See Tables 5, 6, 7.

Table 5 Joint distribution of importers across number of sources and number of products, 2009–2013.
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Table 6 OLS regression of TFP on import participation, robustness tests
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Table 7 Industry level association between importing of intermediate inputs and productivity
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Edwards, L., Sanfilippo, M. & Sundaram, A. Importing and Productivity: An Analysis of South African Manufacturing Firms. Rev Ind Organ 57, 411–432 (2020). https://doi.org/10.1007/s11151-020-09765-z

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