Import Churning and Export Performance of Multi-Product Firms

Abstract

This paper analyzes the impact of churning in the imported varieties of capital and intermediate inputs on firm export scope and productivity. Using detailed data on imports and exports at the firm–product-market level, we document substantial churning in both imports and exports for the Slovenian manufacturing firms in the period 1994-2008. On average, a firm changes about one quarter of imported and exported product-markets every year, while gross churning in terms of added and dropped product-markets is almost three times higher. A substantial share of this product churning is due to simultaneous imports and exports of firms in identical varieties within the same CN-8 product code (so called pass-on-trade). We find that churning in imported varieties is far more important than reduction in tariffs or declines in import prices for firms’ productivity growth and increased export product scope. We also find that gross churning has a bigger impact on firm productivity improvements by a factor of more than 10 in comparison to the net churning. Both adding and dropping of imported input varieties thus seem to be of utmost importance for firms aiming to optimize their input mix towards their most valuable inputs. These effects are further enhanced when excluding the simultaneous trade in identical varieties, suggesting that pass-on-trade has less favorable effects on firms’ long-run performance than regular trade.

Keywords: pass-on-trade, multi-product firms, imports, export scope, total factor productivity

JEL Classification: R10, R15