Imports and TFP at the Firm Level: The Role of Absorptive Capacity

This paper estimates the effect of the decision to import intermediate goods and capital equipment on Total Factor Productivity (TFP) at the firm level on a panel of Spanish firms (1991-2002). We use two alternative approaches. In the first, we estimate TFP and apply a diff-in-diff estimator with a control group constructed by propensity-score matching. In the second, direct method, we estimate TFP with imported inputs as a state variable in one stage. Both approaches show that the effect of a firm’s decision to source intermediates and capital equipment abroad on its TFP depends critically on its capacity to absorb technology, measured by the proportion of skilled labor.