PM: The importance of imports for productivity and exports
Despite the close link between imports and exports, most of the analysis and policy discussions have traditionally focused on how to strengthen exports, without further consideration of the potential for imports. Against this background, this paper aims to highlight the link between imports, productivity and exports.
There is now convincing evidence that international trade is beneficial to productivity and economic growth. This relationship applies both to productivity at the firm level as well as to differences in economic growth across countries. In particular, small economies with a limited domestic market have benefited from the possibility of international exchange.
The impact of international exchange differs across firms. There is evidence that when opening a market to international exchange the most productive firms dominate international trade while the less productive ones tend to be squeezed out. These findings warrant a closer examination of the relationship between firms' imports and competitiveness.
The focus of this report is to examine the relationship between imports, productivity and export performance. The data material used covers all Swedish manufacturing companies with at least 10 employees during the period 2007–2020.
Several important observations are highlighted:
- Almost 80 per cent of enterprises with at least 10 employees are involved in international trade. The smallest enterprises act only as exporters or importers while the largest enterprises are two-way traders.
- The majority of imports, regardless of firm size, come from high-wage countries. However, we observe an increasing share of imports from low-wage countries over the years.
- There is a clear ranking of which firms become importers and where they import from. Firms with the highest productivity import from both low- and high-wage countries, whereas medium productivity firms are engaged in import-only or export-only activities and the lowest productivity firms are non-importers.
- We have some evidence that small firms that start importing, particularly from high-wage countries, have faster productivity growth than those that abstain from such activity.
Overall, the evidence presented here suggest that efforts taken to reduce obstacles to trade in general and to ease imports in particular can be beneficial for productivity and exports.