Does Input-Trade Liberalization Affect Firms'Foreign Technology Choice?

62 Pages Posted: 11 Nov 2016

See all articles by Maria Bas

Maria Bas

Université Paris I Panthéon-Sorbonne

Antoine Berthou

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques; Paris School of Economics (PSE)

Date Written: November 7, 2016

Abstract

This paper studies the impact of input-trade liberalization on firms' decision to upgrade foreign technology embodied in imported capital goods. The empirical analysis is motivated by a simple theoretical framework of endogenous technology adoption, heterogeneous firms and imported inputs. The model predicts a positive effect of input tariff reductions on firms' technology choice to source capital goods from abroad. This effect is heterogeneous across firms depending on their initial productivity level. Relying on India's trade liberalization episode in the early 1990s, this paper demonstrates that the probability of importing capital goods is higher for firms producing in industries that have experienced greater cuts on tariffs on intermediate goods. Only those firms in the middle range of the initial productivity distribution have benefited from input-trade liberalization to upgrade their technology.

Keywords: International Trade and Trade Rules

Suggested Citation

Bas, Maria and Berthou, Antoine, Does Input-Trade Liberalization Affect Firms'Foreign Technology Choice? (November 7, 2016). World Bank Policy Research Working Paper No. 7883, Available at SSRN: https://ssrn.com/abstract=2867664

Maria Bas (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Antoine Berthou

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques ( email )

106/112 boulevard de l'Hopital
Paris Cedex 13, 75647
France
(+33)144078211 (Phone)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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