Imported Intermediate Inputs and Firms’ Productivity Growth: Evidence from the Food Industry

Imported goods play a central role in determining the gains from trade. Using detailed trade and firm-level data for Italy and France, we investigate the relationship between trade integration, imported intermediate inputs and firm performance in the food industry. Our main findings show that an increase in import competition spurs firm-level productivity growth. Furthermore, the productivity growth effect attributable to imported intermediate inputs is significantly stronger than the effect due to imported final products. In addition, we find that new imported inputs are of particular importance, especially for Italian food firms, though less so for the French firms. Finally, the productivity growth effect of trade integration tends to be asymmetric across firms: more productive firms gain more from trade integration. These stylised facts have interesting policy implications.