Effects of Imported Intermediate Varieties on Plant Total Factor Productivity and Product Switching: Evidence from Korean Manufacturing

By utilizing previously unexplored plant-product data on Korean manufacturing, and detailed import data for 1991-1998, this paper empirically investigates whether greater access to imported intermediate varieties enhanced plant total factor productivity and product-switching behavior. First, consistent with previous empirical studies, we find that a plant that belonged to industries with higher imported intermediate variety growth experienced higher productivity growth. Second, our empirical results suggest that increased imported intermediate varieties stimulated the product-switching behavior of domestic plants. Because product-switching behavior (i.e. simultaneously adding and dropping products) could be understood as a part of the continual process of creative destruction' within plants, our results imply that imported intermediate variety growth may be one of the channels through which resource reallocation within plants can be promoted.