Imported Inputs and Productivity

László Halpern, Miklós Koren and Adam Szeidl

December 2015


We estimate a model of importers in Hungarian micro data and conduct counterfactual policy analysis to investigate the effect of imported inputs on productivity. We find that importing all input varieties used in production would increase a firm's revenue productivity by 22 percent, about half of which is due to imperfect substitution between foreign and domestic inputs. Foreign firms use imports more effectively and pay lower fixed import costs. Our estimates imply that during 1993-2002, a quarter of the productivity growth in Hungary was due to imported inputs. Simulations show that the productivity gain from a tariff cut is larger when the economy has many importers and many foreign firms, implying policy complementarities between tariff cuts, dismantling non-tariff barriers, and FDI liberalization.

Please cite as

Halpern, László, Miklós Koren and Adam Szeidl, 2015. “Imported Inputs and Productivity.” American Economic Review. 105(12), pp. 3660-3703. bib