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Do imports of intermediate inputs generate higher productivity? Evidence from Ecuadorian manufacturing firms

Abstract:

This paper examines the causal effect of importing on firm productivity. We use an augmented Cobb–Douglas production function in which the static and dynamic effects of importing and exporting are estimated for formal manufacturing firms in Ecuador. We use a rich administrative data set that covers the period 2007–2018 and estimate total factor productivity (TFP) at the firm level. Our results show that both static and dynamic effects are important sources of gains from importing. We find that static and dynamic gains in productivity from importing intermediates are higher in more innovative industries than in less innovative industries, which implies an industrial heterogeneity effect. We also find that the elasticity of substitution between imported and domestic intermediates in all the industries are substitute inputs. Finally, we provide robust evidence in favour of self-selection on the entry and exit side sides of the market. Our estimation results provide support to the learning-by-importing hypothesis.