Does Importing More Inputs Raise Exports? Firm-Level Evidence from France

Abstract

Does an increase in imported inputs raise exports? We provide empirical evidence on the direct and indirect channels via which importing more varieties of intermediate inputs increases export scope: (i) imported inputs may enhance productivity and thereby help the firm to overcome export fixed costs (the indirect productivity channel); (ii) low-priced imported inputs may boost expected export revenue (the direct-cost channel); and (iii) importing intermediate inputs may reduce export fixed costs by providing the quality/technology required in demanding export markets (the quality/technology channel). We use firm-level data on imports at the product (HS6) level provided by French Customs for the 1996-2005 period, and distinguish the origin of imported inputs (developing vs. developed countries) in order to disentangle the different productivity channels above. Regarding the indirect effect, imported inputs raise productivity, and thereby exports, both through greater complementarity of inputs and technology/quality transfer. Controlling for productivity, imports of intermediate inputs from developed and developing countries also have a direct impact on the number of exported varieties. Both quality/technology and price channels are at play. These findings are robust to specifications that explicitly deal with potential reverse causality between imported inputs and export scope.

Keywords: Firm heterogeneity, imported inputs, TFP, export scope, varieties, firm-level data

JEL Classification: F10, F12