Input variety, output variety, and economic development in East Asia

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In this study we investigated the relationship between trade structures at industry and firm level and firm's productivity for three countries. Especially we tested the impact of imported intermediate on firm's performance.In all three South-East Asian countries (Indonesia, Malaysia, and Thailand), productivity of foreign plants is higher than that of local plants. In Thailand and Malaysia, plants that export as well as import have higher labor productivity than the plants that don't. In Indonesia, it is found that there is a strong correlation between import and high productivity. In sum, in all three countries, imported intermediated goods play an important role for the productivity 'gains. In Thailand, trade barriers are negatively correlated with plant's productivity. This indicates the importance of trade liberalization for economic growth. In Malaysia, as expected R&D expenditure and IT investment are positively correlated with high productivity.As we discussed, foreign firms gain a large market share in Thailand manufacturing sector, especially, machinery industries. One of our main focuses of this study was on the effects of international trade on local firm's productivity. After controlling for the foreign factor, we found strong evidence that competition, imported inputs, and imported machinery at industry level and local firm's engagement in international trade are crucially important for firm's productivity.