We estimate a model of importers in Hungarian micro data and conduct counterfactual analysis to investigate the effect of imported inputs on productivity. We find that importing all input varieties would increase a firm's revenue productivity by 22 percent, about half of which is due to imperfect substitution between foreign and domestic inputs. Foreign firms use imports more effectively and pay lower fixed import costs. We attribute a quarter of Hungarian productivity growth during 1993-2002 to imported inputs. Simulations show that the productivity gain from a tariff cut is larger when the economy has many importers and many foreign firms. JEL: F12,F14 Keywords: imports, intermediate inputs, firm productivityUnderstanding the link between international trade and aggregate productivity is one of the major challenges in international economics. To learn more about this link at the microeconomic level, a recent literature explores the effect of imported inputs-which constitute the majority of world trade-on firm productivity. Studies show that improved access to foreign inputs has increased firm productivity in several countries, including Indonesia (Mary Amiti Jozef Konings 2007), Chile (Hiroyuki Kasahara Joel Rodrigue 2008) and India (Petia Topalova Amit Khandelwal 2011). 1 A next step in this research agenda is to investigate the underlying mechanism through which imports increase productivity. As Juan Carlos Hallak James A Levinsohn (2008) emphasize, understanding which firms gain most, through what channel, and how the effect depends on the economic environment, are important for evaluating the welfare and redistributive implications of trade policies.To explore these questions, we estimate a structural model of importer firms

Our aim in this paper is twofold: to find whether FDI causes horizontal or vertical productivity spillovers to domestically-owned Hungarian manufacturing firms, and to see if distance matters in spillovers. For this exercise we use a large panel of Hungarian firms and different panel models. Consistently with previous research, at the country level, we find positive vertical spillovers but no evidence of positive horizontal spillovers. By taking distance into consideration, however, we find positive horizontal spillovers for domestic firms close to foreign-owned firms. By constructing spillover measures weighted by distance, we find similar patterns. Our results underline the importance of labour market rigidity and the local nature of knowledge in the case of horizontal spillovers. Copyright (c) 2007 The Authors Journal compilation (c) 2007 The European Bank for Reconstruction Development .

In this study, we analyse the relationship between distance and f.o.b. export unit values using firm–product–destination data from Hungarian manufacturing. Using 10‐digit Harmonized System data, we show that a doubling of distance is associated with about 7.5 per cent increase in the average product‐level price, from which five percentage points can be attributed to within‐firm–product variation. We run a number of tests to look for heterogeneity in this pattern. Interestingly, the measured effect is very similar for domestic and foreign firms but distance seems to matter somewhat more for EU countries than outside the EU. We do not find much evidence for heterogeneity across product categories based on measures of vertical differentiation. The level of product aggregation matters; the distance coefficient is larger when products are aggregate to the eight or six‐digit level.