Imported Input Varieties and Product Innovation: Evidence from Five Developing Countries

We examine how access to imported intermediate inputs affects firm-level product innovation in five developing counties. We combine trade data with survey data on innovation and develop a method to determine whether new inputs were essential for the product innovation. We find evidence that
the number of newly imported varieties has a significant positive and sizable impact on product innovations that use new inputs and in particular innovations for which a new input is an essential feature. We provide suggestive evidence that this effect comes from access to better quality imports. Given the large expansion of the number of Chinese firms exporting the five developing countries, we also analyze the effect of firm-varieties from China on product innovation. We find evidence in favor of a positive correlation, but we cannot confidently confirm a casual relationship.