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Impact of imported intermediate and capital goods on economic growth: A Cross country analysis

C Veeramani

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: Knowledge accumulation in the richer countries provides them with comparative advantages in higher productivity products. The countries that import the higher productivity intermediate products and capital equipments produced in the richer countries, however, derive benefits from knowledge spillovers. The empirical analysis in this paper shows that what type of intermediate goods and capital equipments a country imports and from where it imports indeed matters for its long-run growth. Using highly disaggregated trade data for a large number of countries, we construct an index (denoted as IMPY) that measures the productivity level associated with a country's imports. Using instrumental variable method (to address the endogeneity problems), we find that a higher initial value of the IMPY index (for the year 1995) leads to a faster growth rate of income per capita in the subsequent years (during 1995-2005) and vice versa. The results imply that a 10 increase in IMPY increases growth by about 1.3 to 1.9 percentage points, which is quite large.

Keywords: Imports; Intermediate and Capital Goods; Economic Growth; Productivity (search for similar items in EconPapers)
JEL-codes: F10 F43 O40 O47 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2008-12
New Economics Papers: this item is included in nep-dev, nep-eff and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ind:igiwpp:2008-029

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