6 Does the direction of trade explain the positive effect of vertical
specialization?
These findings seem to substantiate the hypothesis that, at the firm level, there is a positive
relationship between performance and the involvement in foreign networks. In fact not
only exports but also imports have their role with respect to performance. It can be the
case that in order to be successful in foreign markets as sellers, firms have to customize
their production and use imported inputs. In addition, importing intermediate inputs from
abroad firms can benefit from more advanced technology levels and from better quality
goods. Furthermore being contemporaneously an importer and an exporter a firm can
reduce the fixed costs linked to the gathering of information on foreign markets.
Our data do not allow to explain with more detail the kind of contractual relationship that
the firms in the sample have with their foreign counterparts. We only know the share of
foreign ownership of these firms and this is a factor that we have controlled for thorough
the whole analysis showing that there is a positive relationship with firm’s performance39
but it is not the main factor that explains it. However, a nice feature of the ICS survey is
that, for each firm, there are detailed information on the share of import sourced from
specific origin and the share of export to specific destination.
We will use this information to shed some light on the kind of international network in
which these firms are involved, or at least to have insights on the technological level to
which Indian firms are exposed, to better justify this productivity advantage of firm that
are both importers and exporters.
Next section will therefore presents some location-specific network indexes which have
been related to the performance indexes to identify systematic patterns.
6.1 Direction of trade
The information on the destinations and origin of goods traded refer to three main
geographic areas: “North” (which includes North America, Europe), “Asia” (which
includes also China and Japan), “South” (Central-Latin America, Africa, Eastern Europe,
39 In all the estimations the variable “Share of foreign ownership” shows a positive and significant sign.
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