Made in Spain: Import Switching and Productivity

Mer, 04/05/2022 - 12:00 / 13:00

401, Viale Romania

Speaker: Carolina Villegas Sanchez , ESADE Business School

(Co-authored with Elvira Prades from Bank of Spain)

Abstract

Do firms respond to local customer and supplier cost shocks by reducing their share of imported intermediate goods? We use firm level information from the quasi-universe of Spanish manufacturing firms from 2002 to 2013 and exploit changes in relative unit labor costs vis-a-vis main trading partners in upstream and downstream sectors during the Spanish internal devaluation episode. The share of imported intermediate goods is not affected by supplier competitive gains. However, there is import switching by firms selling to downstream sectors producing non-specific goods at higher relative unit labor costs. Estimates from a structural model show the negative contribution of lower price-adjusted foreign inputs to aggregate manufacturing productivity. Import switching in non-specific good sectors explains 40% of the cumulative productivity losses observed from 2003 to 2013 in the Spanish manufacturing sector.