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Supported by the commodities boom and a raft of policy liberalizations, Peru saw significant growth, but sustaining this will be a challenge following the end of the favorable commodity cycle.
Trade is a driver for growth that has not been fully exploited in the case of Peru. In fact, in a world where most trade in goods is connected to global value chains (GVCs), Peru has remained weakly integrated into regional and global networks. Even during the commodities boom, Peru’s exports remained far below the levels predicted by its income level, and at 24.2 percent its import share of GDP was the 12th lowest in the world in 2013. This latter could be a problem from a dynamic perspective, given that imports, especially of inputs or intermediate goods, are critical for long-run growth, through their effect via the productivity channel.
Since imported inputs enhance firm productivity, they can also play a critical role for firm export performance.
Specifically, importing a larger variety of intermediate inputs increases firm productivity via a technology of increasing returns.
More productive firms can afford to incur the sunk costs required to export and still be profitable and thus they are more likely to export. The use of imported intermediate inputs can also affect firms’ export decisions through a quality mechanism. Imported intermediate inputs are often of higher quality than domestic inputs, — especially for firms in developing countries. Finally, export decisions can also be affected by the use of imported intermediate goods through a cost mechanism. In particular, access to lower-priced imported inputs might reduce firms’ costs and, as a result, firms that were previously unable to export would now be able to afford these fixed costs and enter export markets.
Pierola et al. (2015) explored the role of imported inputs for the export performance of firms in Peru. Using highly disaggregated exporter-level and importer-level customs data for Peru between 2000 and 2012, the authors evaluate the relationship between imported intermediate inputs and export performance for the overall export sector. Specifically, they estimate the premia for exporting firms that are also direct importers compared to those that are not direct importers for a wide range of firm export performance measures.
In line with a growing body of recent literature, they find that greater use, variety, and quality of imported intermediate inputs correlates significantly with higher exports, faster export growth, greater diversification of export markets, and higher quality exports (as measured by relative unit prices) at the firm level. These results are robust even after accounting for differences across firms’ cyclical effects. Complementary analysis using data from a manufacturing census supports these findings, showing that the use of imported inputs is also associated with higher productivity at the firm level.
The question that thus arises is why Peruvian firms import so little on average, if imported inputs have such a positive impact on their performance.
To understand this, the authors explore the correlations between specific trade policy, in the form of tariffs and nontariff barriers (NTBs) and trade facilitation measures (the use of an advance customs clearance procedure) and the import performance of exporters that are also direct importers (exporter-importers). They find that firms that are exposed to higher tariffs and more NTBs import less and use a smaller variety of imported inputs. On the trade facilitation front, the authors also found that the use of the advance clearance procedure to clear customs for imports has been favorable to the import performance of exporter-importers.
These findings lend support to the policy of extensive trade liberalization that Peru has pursued over the past decade. They underscore the importance of effective de facto implementation of trade policy measures and efficient trade facilitation procedures. Indeed, the high sensitivity of firms to the policy measures assessed in this paper, perhaps most importantly to expedited customs clearance procedures, may reflect the fact that despite efforts to liberalize further, trade policy barriers still matter. At the same time, Peru stands to gain from reducing the broader trade facilitation barriers it currently faces. This may also suggest that the country should shift the main front on the battleground for improving trade performance from trade policy to trade facilitation.
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