Imported Inputs and Productivity

Abstract

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

Trade Adjustment and Productivity in Large Crises

“…The presence of these fixed costs is consistent with the empirical evidence we presented earlier and the evidence in Halpern, Koren, andSzeidl (2009). Total fixed costs can be written as:…”

“…See, for instance, Amiti and Konings (2007) and Goldberg, Khandelwal, Pauvcnik, and Topalova (2009) for the impact of liberalization and increased trade in Indonesia and India, respectively. Halpern, Koren, and Szeidl (2009) use Hungarian firm-level data to document gains from improved access to imports when these imports are imperfectly substitutable for domestic inputs at the firm level. Their measure of productivity gains is the decline in firms' unit costs (marginal costs) of production arising through the sub-extensive margin.…”

“…The elasticity of imports to the shock is therefore bigger. Moreover, the change in imported input varieties generates an increase in unit costs above and beyond that implied by the shock, along the lines of Halpern, Koren, and Szeidl (2009). These two forces work in the direction of generating a greater decline in productivity.…”

Relationship Between Inflation and Real Economic Growth in Rwanda

“…Singh and Kaur (2014) claim that openness positively affects the share of the service sector in gross domestic product. According to Halpern et al (2015) importing all inputs will increase a firm's revenue productivity by 0.22%, about one-half of which is due to imperfect substitution between foreign and domestic inputs. They argue that productivity gains from a tariff cut are larger when the economy has many importers and many foreign firms.…”

Offshoring and Labor Markets

“…However, these falling tariffs lower production costs and increase profits for the offshoring firms of industry i, while boosting sales and profits for the exporting firms of 28 See the discussion in Section 3.2. For empirical papers linking imports to firm productivity see Amiti and Konings (2007), Kasahara and Rodrigue (2008), Goldberg et al (2010), Bustos (2011), andHalpern, Koren andSzeidl (2015). 29 Since the magnitudes of the tariff cuts might be influenced by industry lobbying, Amiti and Davis (2011) use a differencing specification, where every variable is in 5-year differences.…”