IMPORTED CAPITAL INPUT, ABSORPTIVE CAPACITY, AND FIRM PERFORMANCE: EVIDENCE FROM FIRM-LEVEL DATA

Importing capital inputs has been recognized as a critical channel for technology transfer across countries. We examine whether and to what extent the productive impact of imported capital varies with firms' abilities to absorb new technologies using ordinary least squares, instrumental variable, and threshold regression estimators. We find that firms with higher absorptive capacity gain significantly more from importing foreign capital. Our results also suggest a threshold for such benefits. Furthermore, the productive contribution of skilled labor is significantly higher in firms that import foreign capital. Developing policies to augment absorptive capacity will help firms in developing countries to realize benefits associated with imported capital. (JEL F14, D24, L24, O33)