Does Importing More Inputs Raise Productivity and Exports? Some Evidence from Indian Manufacturing

Abstract

This study aims to analyse the role of imported inputs on productivity and export performance of the manufacturing industries of India. Our results indicate that imported inputs are crucial determinates of Total Factor Productivity (TFP). However, the impact varies greatly across industries. Furthermore, results regarding research and development (R&D) intensity suggest that inhouse R&D activities do not play a significant role in the productivity performance of Indian manufacturing firms. Our results also indicate that imports lead to a substantial growth in exports. In particular, exports in the chemical, machinery and transport equipment industries are highly dependent on imported intermediate goods. The results also indicate that although R&D is not linked with the productivity of industries, it has an important role in the export performance of these industries. TFP is also estimated to have a significant and sizable impact on export performance. This, in turn, supports the self-selection hypothesis, which explains the self-selection of more productive firms into the export market. Overall, our results support both hypotheses: learning by importing and self-selection in the import market.