On the Role of Imports in Enhancing Manufacturing Exports

Abstract

Making use of a large panel dataset on Italian manufacturing firms, we provide evidence on the effect of imports on the firm export performance. We distinguish imports of intermediates according to their origin and we find that inputs sourced from low labour cost countries promote the firm's export activity. Imports from high-income countries do not significantly contribute to the export orientation of firms, especially when both persistence in export and the possible endogeneity of the import measures are accounted for via System GMM estimation of a linear probability model. Our evidence suggests that the impact of imports on the firms' export activity works through the cost saving channel rather than the technology channel.

Keywords: Exporters, importers, cheap labour countries

JEL Classification: F14, D22