Machine imports, technology adoption, and local spillovers

Abstract

In developing economies import can be the primary source of adopting new technologies and modern production equipment. Using a uniquely compiled Hungarian firm-level dataset, we investigated whether firms’ decision to import a specific machine is influenced by the local accumulation of experience in that same imported machine. Our results suggested that an additional local importer in the firm’s vicinity increases the probability of importing that particular machine considerably. Distance plays a key mediating role as firms, especially in small cities, learned mostly from neighboring peers. We also found that even within a type of imported machine, the source country of the product matters a great deal.Finally, the extent of spillover effects was found to vary a great deal both with respect to the importing firm as well as the composition of peers. Larger, foreign owned and internationalized firms are the ones that benefit from having importing firms in their vicinity, while small and domestically owned firms could actually be adversely affected by peer effects. Our results could be indicative for policy-makers interested in indirect impact of technology upgrade subsidy programs. We found that such indirect effects do exist. However, they are centered on large to large firm interactions. As smaller sized firms producing for the domestic market do not benefit much from import spillovers, policies aimed at helping such firms may not rely on these indirect effects.