Imports in a Low-Income Country

International trade has been an integral part of every successful development strategy. This research project will focus on the benefit of imports, and whether imports provide low-income countries with access to high-quality or high-technology goods, which enable an expansion in their firm capabilities. The research will include exploration of the benefit of import trade for non-tradable sectors such as construction and services, and of imported inputs into manufacturing.

This project will have immediate broad policy implications for Rwanda, and specific implications for similar low-income developing countries. It will address the growth constraint of access to particular (imported) products and technology, and the importance of this access for firm capabilities and success. The research will study the different ways in which imports are important to firms in both tradable and non-tradable sectors. The goal will be to answer, for example, the following policy-related questions. Does increased access to imported inputs facilitate firm growth? Does increased access to imported inputs facilitate increased firm productivity? Is access to imports important for firms engaged in exporting? What is the impact on exporters of changes in this access?

This project will also examine which imports in particular might be important for each question above. By delineating (by product type, or product source country, or product value or combinations thereof) exactly which imports appear to matter in the low-income context of Rwanda, this can provide policymakers with some guidance on which products are high-priority and which are low-priority for targeting for tariff liberalisation.

While there has been an explosion of empirical work on international trade using firm-level data over the past decade, it has been focused primarily on exports, on middle- and high-income countries, and on the manufacturing sector. There has been little research done using firm-level data on international trade in low-income countries and/or African countries. There has also been little research on the use of imports by firms, or on international trade more generally outside of manufacturing.

The data used in this project includes firms in all sectors of the economy in Rwanda, including data on their import and export transactions, as well as their employment, wage bill, and overall sales details. Very few other firm-level studies have been in a low-income context such as Rwanda.

The causal impact of imports on various outcomes is established by using changes in a firm-level exchange rate index as an instrumental variable for changes in firm-level imports. In the data, firms do respond to price fluctuations, in this case the price fluctuations resulting from exchange rate changes.