Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

GEP 15/04: Firm Efficiency and Input Market Integration: Trade versus FDI

Summary

This paper studies how international market integration of intermediate inputs, via both trade and FDI, affects firm productivity. Different effects are found between importers and non-importers.

Abstract

This paper highlights the crucial role played by international access to intermediate inputs to explain firm-level performance, via two channels simultaneously: trade and FDI. We develop a simple theoretical model showing that trade integration of input market entails an efficiency improvement within firms able to import (gains from input switching) and an efficiency decline within other firms (losses from domestic input availability). At the same time, FDI integration of input market implies non-importers’ efficiency enhancement (gains from input switching) and some ambiguous effects on importers’ efficiency (due to additional losses from foreign input availability). Using firm-level data from the Chinese manufacturing sector over the period 2002-2006, we find some results coherent with our theoretical predictions.

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Author

Michele Imbruno

 

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Posted on Monday 23rd March 2015

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