Capital Goods Imports, Catch-Up and Total Factor Productivity Growth

Abstract

This paper undertakes an empirical examination of the effect of capital goods imports on Total Factor Productivity (TFP) growth. Using a broad sample of 77 countries for the time period 1975 - 1995, the study first provides evidence of positive and significant effect of capital goods imports on TFP growth. In addition, the paper examines for if there are any advantages of technological backwardness associated with capital goods imports. We also find that countries which are technologically backward gain more from capital goods imports. A 10% increase in the share of capital goods imports to GDP is associated with approximately 0.4% increase in TFP growth. The results are robust to inclusion of other relevant variables and consideration of simultaneity bias.