Intermediate Input Imports, Domestic Input Use and Firm-level Outcomes: Evidence from Survey Data

Abstract

Imported intermediate inputs, that is, parts and materials sourced from abroad and used to make products either consumed domestically or in producing exported goods are a growing force in world trade. We test for the relative effect of imported intermediate inputs and domestic inputs in promoting foreign exports and various forms of domestic sales, using firm-level survey data. Imported intermediate inputs are found to be associated with higher overall sales, foreign exports and larger sales to multinational companies domiciled in the home country. On the other hand, domestic inputs are not found to have statistically significant positive effect on any firm-level outcomes. Since exporting firms are usually more productive than domestic firms, the results point towards the salience of outsourcing inputs in supporting firm productivity and the importance of policymaking in facilitating trade in intermediate inputs across countries. JEL: F10, F12, F23