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THE WORLD BANK ECONOMIC REVIEW, VOL. 16, NO. 1, 23-48
© 2002 International Bank for Reconstruction and Development / The World Bank

Article

Imported Machinery for Export Competitiveness

Ashoka Mody and Kamil Yilmaz

Ashoka Mody was at the World Bank when this paper was written and is presently in the Research Department at the International Monetary Fund; his e-mail address is amody{at}imf.org
Kamil Yilmaz is with Koç University, Istanbul, Turkey; his e-mail address is kyilmaz{at}ku.edu.tr.

Abstract

This article analyzes the relationship between export competitiveness and investment in machinery, allowing for imperfect substitution between domestically produced and imported machinery. A translog export price function is estimated for developed, exportoriented developing, and import-substituting developing economies in a panel data setting. Between 1967 and 1990 imported machinery helped lower export prices for export-oriented developing economies. Moreover, throughout the period imported machinery was not a substitute for domestic machinery. Import-substituting developing economies were unable to harness imported machinery to reduce costs early in the period, but from about the early 1980s, with the opening of their trade regimes, they were able to benefit from the cost-reducing effect. The results imply that innovative effort based on imported technologies can be a precursor to the development of domestic innovation capabilities.


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