On the role of imports in enhancing manufacturing exports

Within the recent strand of empirical literature on the relationship between exports and imports, we provide evidence on the role of imports in enhancing the export probability of manufacturing firms. We confirm that exporting and importing are two importantly interrelated strategies, and, when accounting for productivity and export sunk costs, we find that only imports from cheap labour countries positively and significantly affect the export probability of Italian manufacturing firms. We interpret this finding as the working of the cost-saving channel, opposed to the technology channel, usually identified in the literature with imports from high-income countries, that in our study never turns significant. This evidence on the Italian data suggests that imports from low-income countries represent one of the key characteristics that allow firms to easily gain and preserve competitiveness in the export markets. Investigating the role of imports in manufacturing can have important implications on the understanding of the manufacturing firm’s competitive strategies.