Importing and Firm Productivity in Ethiopian Manufacturing∗

In this paper, I investigate the causal relationship between importing and firm productiv-ity. Using a rich dataset from Ethiopian manufacturing over the period 1996–2011, I find that most firms source capital and intermediate goods from the world market. These firms are bet-ter performing as shown by significant, economically large import premia. I also find strong evidence of self–selection of more productive firms into importing, highlighting substantial import market entry costs. To examine the causal effect of importing on firm productivity, I use a model in which the static and dynamic effects of importing are separately estimated. The estimation results provide evidence of learning–by–importing. However, the small sizes of the productivity gains suggest the limited absorptive capacity of firms in the economy