choose a firm level normalization of such index dividing by the material inputs used in
the production process. Thus, for the firm i at time t our index will be :
IEit =
VSit
Material Inputsit
Imported Intermediates it *
Material Inputs it ^
<τ, A
Exports it
Sales .t
к it √
(5)
The main advantage of this second index is that it varies from zero to one. It is zero in
the case that the firm does not import any intermediate inputs or it does not export any
share of output. While, its upper bound is reached if all the inputs come from abroad
and, at the same time, all the output is sold in foreign markets. By some means, this
measure can be considered as a proxy for the extent of vertical integration of local firms
in foreign networks. In fact, this index will be higher the higher are both import and
export shares. For example if a firm imports 30 percent of its inputs and exports 70
percent of its output (or vice versa) the index will be 0,21 , lower than the case of a firm
with import and export intensities of 50 percent (0,25). This is because or index is meant
to combine the degrees of the upstream and the downstream linkages and the first case
corresponds to a firm mostly concentrated on the export linkage.
One other measure that is worth considering, because of its straightforward
interpretation, is the import content of export. Which, for the firm i at time t, will be
defined as:
IE_sh
Imported Intermediates it
(6)
Exports it
This measure is of great importance for trade policy. In fact, when designing trade
liberalization measures with the aim of boosting exports it is important to take into
account, how much domestic firms are dependent on imports. However, this measure
can be constructed only for exporting firms therefore excluding from the analysis
those firms that choose to serve the domestic market.
From Table 4, the average value of the IE index (5) appears to be not very high
showing how important is, in our sample, the weight of the firms that do not trade.
While the second index (6), calculated on the sub-sample of exporters appears
12
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