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Ricardo A. López

This chapter examines the channels by which international trade improves firms’ performance. There is a large amount of empirical research documenting the characteristics of firms that participate in international markets either as exporters, importers of intermediate inputs or buyers of foreign technology. These firms tend to be more productive, larger, more capital and skill intensive and pay higher wages compared to firms that participate solely in the domestic market. Because of data availability, most of the empirical studies focus on exporting. The main purpose of many of these studies is to determine the direction of the causality between exporting and measures of performance such as productivity, size and survival. There is also a growing body of literature studying the effect of importing intermediate inputs and foreign technology acquisition through licences on firms’ performance. The chapter describes the current state of the academic research, discusses the policy implications and how policy makers in developing countries can use international trade as a way to increase productivity and economic growth.

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Raffi Garcia and Ricardo A. López

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Ana M. Fernandes and Ricardo A. López

International markets tend to be more competitive and more demanding in terms of product quality than the domestic markets of most developing countries. For this reason, firms in less-developed countries attempting to export their goods to other more developed countries need to adopt new and modern technologies that allow them to increase their levels of productivity or improve the quality of their products. For firms in developing countries, where innovation activity is relatively low, imported technologies represent the main way to increase the quality of their products or reduce their costs of production. The chapter considers the effect of imported technologies on exporting activity of Chilean manufacturing plants over the period 1995–2007, considering the probability of exporting and export intensity. In this way, we examine whether imported technologies help increase the extensive margin of exports (the number of exporters) or the intensive margin of exports (the amount exported by firms). Direct measures of imported technology are not easy to obtain. The chapter focuses on four variables that proxy for different sources of foreign technology at the sector or plant level: imported machinery and equipment; whether the plant has foreign ownership; purchases imported intermediate inputs; or spends on foreign technology licenses and technical assistance. The main results are that imports of machinery and equipment, imports of intermediate inputs, foreign ownership, and foreign technology licences all have a positive and significant effect on the probability of exporting for Chilean manufacturing plants, while only foreign ownership has a significant effect on export intensity.

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Oliver Morrissey, Ricardo A. López and Kishor Sharma