Export variety and imported intermediate inputs: industry-level evidence from Africa

MPRA Paper No. 106008, 10 Feb 2021

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Imported intermediate inputs offer access to lower-priced, higher quality, and a wider variety  of  inputs  that  can  increase  the  possibility  of  producing  and  selling  more  diversified products in foreign markets. In this paper, we examine this relationship using a novel manufacturing industry-level data across 26 African countries over the 1995-2016 period. We find strong evidence of a positive relationship between imported intermediate inputs and the variety of exported  products.  Further  analyses  in  the  study  indicate  that  imported  intermediate  inputs positively  affect  the  variety  of  exported  products  because  they  offer  lower-priced,  and  higher-quality/technology embodied inputs. However, the positive effect of imported intermediate inputs on the variety of exported products depend on industry's absorptive capacity, especially when the inputs are sourced from advanced countries. We discuss the implications of our findings.