Imports, supply chains, and firm productivity
This paper explores the relationship between imports and firm productivity, focusing on imported intermediates. Using firm-level data on over 20,000 manufacturing firms in Vietnam, we find evidence for competition-induced productivity gains from trade. We show that gains in intermediate sectors spill-over to downstream sectors such that firms using more inputs from import-intensive sectors experience higher productivity gains.
The evidence indicates that the main source of spill-over is better quality, domestically produced inputs. Ignoring the gains from trade through this mechanism may significantly underestimate the impact of trade on productivity.