What You Import Matters for Productivity Growth: Experience from Chinese Manufacturing Firms

Abstract

This paper investigates the distinct effects of capital and intermediates imports on firms' productivity growth, and quantifies the importance of tariff structure in trade liberalization in developing countries. Using a large panel of Chinese manufacturing firms, we demonstrate that capital import has a substantially larger productivity effect than intermediates import. On the one hand, while both types of imports exert immediate effects on productivity, only capital import has dynamic productivity effects. On the other hand, we identify significant R&D-capital synergy effect and R&D-inducing effect from capital import, but there is no clear evidence of these effects from intermediates import. Regarding the effects of China's input tariff liberalization following its WTO accession, the change in tariff structure explains 18 percent of the productivity gains.