Imported intermediates, innovation, and product scope: Firm-level evidence from developing countries

This paper generalizes recent work for India which shows that the use of imported intermediates is associated with the creation of new product varieties by domestic firms. It uses firm-level data for 17 developing countries and 13 sectors to show that firms that source their inputs internationally tend to introduce more new products than those that use domestic inputs only. In the preferred specification, a firm that imports all of its intermediates tends to produce 18% more new products than a firm that sources all of its inputs locally, after controlling for other factors.