Imports of capital goods and enterprise performance: a firm-level analysis in China

Abstract

Much recent research on openness and productivity has shifted attention away from regions and countries to firms. Most of those studies have focused on exports and productivity. However, empirical study on the relationship between imports and productivity with firm-level data is scarce. This note attempts to help fill this gap using firm-level data in China. Controlling firms’ other characteristics, we find that firms with imports of capital goods have higher productivity. It implies that, in a developing country, firms utilizing foreign products, which embody foreign technologies, have better performance than those only using domestic technologies.

Notes

¹For example, see the survey by Tybout (2001) and Keller (2004).

²The relevant empirical literature to the current study includes Eaton and Kortum (2001), Liu et al. (2002), Caselli and Wilson (2004), Lupez and Shnchez (2005) and Narayanan (2006). But none of these literatures use firm-level data.

³It is commonly argued that the farther a country is away from the technological frontier of the world, the more the country benefits from international technological diffusions.

⁴The observation that some firms imported while the others did not can be explained as follows. As demonstrated by Basu and Weil (1998), the advanced technologies, the vast majority of which originated from the research and development of a small number of most developed countries, were designed to fit the economic conditions in developed countries. In other words, because the disparity of economic conditions between developing and developed countries, foreign technologies may be appropriate only to a fraction of the firms in developing countries. As a result, while some firms find it profitable to import, others do not.