The Decision to Import

Abstract

__________________________________________________________________________ Why do some producers choose to use imported intermediate inputs while others do not? The decision matters for plant performance. In the data, plants that import are much larger and more productive than non-importers. This finding is robust to many statistical controls. Yet only a small fraction of plants choose to import. To try to account for these facts, we develop a simple model of an industry with heterogeneous firms. Each firm has a choice of two technologies: one uses only domestic inputs, while the other uses both domestic and imported inputs. The importer technology involves a fixed cost but offers increased efficiency of production. As a result, only the most efficient firms choose to import, and the fraction of firms that import increases with improvements in the terms of trade. Calibrated to recent data on Chilean manufacturing plants, the model successfully captures the large size difference between importers and non-importers. ________________________________________________________________________ We thank Terry Roe for helpful discussion. We also thank Chile’s Instituto Nacional de Estadisticas for data and Ana Espinola for assistance with the data. The WSU Foundation provided financial support. Correspondence: School of Economic Sciences, Washington State University, Pullman, WA, 99164-6210; mjgibson@wsu.edu, graciata@wsu.edu.