Firm Heterogeneity, Imported Input Quality, and Export Pricing in India

Abstract

Using a novel dataset we examine the pricing behavior of Indian exporters, in particular looking at the relationship between export prices and the quality of imported inputs that firms use, conditioning on firm capability (productivity). Exporting firms that directly import are different in important ways from exporters that do not import directly. Among directly importing exporters, higher quality (higher price) imports are associated with higher quality (higher price) exports. In this respect, Indian exporters behave similarly to other developing country exporters, offering suggestive evidence of the importance for export success of access to high-quality imports.