Static and Dynamic Gains from Costly Importing of Intermediate Inputs: Evidence from Colombia
[Abstract] This paper investigates the effect of importing intermediate inputs on firm value and productivity, by estimating a dynamic model of endogenous importing decision with random sunk and fixed costs of importing. The model provides a unified framework to analyze the determinants of firms' import decisions and to empirically decompose the gains from importing into a static effect, resulting from improved quality and variety of intermediate inputs due to importing, and a dynamic effect, resulting from improved productivity due to importing. Empirical results using a Colombian plant-level data show that importing access increases both the within-plant current period revenue and future productivity substantially, providing evidence on both static and dynamic effects of importing. Counterfactual analysis shows that importing access increases within-plant firm value, which is defined as the accumulated future profit combining both static and dynamic effects, by 11.92-20.63% in the four industries we investigated, among which 1.89-18.41% are contributed by dynamic effect. It is also shown that the sunk and fixed costs of importing affect firm value significantly by changing firms' endogenous importing choices.