Firm Capabilities and Technology Spillover through Trade: Evidence from Sub-Saharan Africa

Using firm-level data for three Sub-Saharan African (SSA) countries and four manufacturing industries, I examine how imports from OECD countries lead to productivity gains for domestic establishments through their knowledge absorption capabilities. I find that domestic firms with technology standards farther away from the international frontier benefit more from trade than those with technology standards closer to international standards. Also, firms with highly skilled workers realize productivity gains with trade. To the extent that the key findings can be generalized for SSA, the implications would be that contrary to arguments that import penetration hurts less competitive local firms, the results suggest that such firms can benefit more from imports. Also policies that promote trade in some particular manufacturing industries should include skill development for employees in local establishments that operate in those industries if such firms are to realize productivity gains. JEL Classification: O55, O33, F14