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Introduction

This paper analyses the performance of Indian firms that participate in international
networks defined by the combination of import and export shares. In addition,
systematic patterns of firm performance are identified after characterizing networks by
the specific origin of import and destination of export.

Here we are considering the firm’s upstream and downstream commercial linkages with
foreign countries as a whole. The activities shaping these foreign network are both
imports and exports as well as foreign ownership1 as already highlighted by Sjoholm and
Takii (2003).

Therefore, we use the combination of import and export intensities to assess the degree
of involvement of firms in trade networks. From this the relationship with firm
performance is explored controlling for foreign ownership. Specifically, using a
simultaneity bias consistent measure of performance levels2 we find that the more Indian
firms are involved in foreign networks the more they have a productivity advantage.

Export or import intensities of Indian firms have previously been studied by Hasan and
Raturi (2003) and by Driffield and Kambhampati (2003). The first two authors focus on
the determinants of export finding that greater usage of imported inputs influence export
volumes positively. While, for a sample of 1800 firms in the period 1987-1994, Driffield
and Kambhampati (2003), found that import intensity had a positive effect on efficiency
only for the textile industry while export intensity seemed to decrease efficiency in
sectors such as machine tools and chemicals.

Following the analysis on the degree of involvement of our firms in trade network, the
subsequent step of our work is the identification of the geographical characteristics of
these networks. Our data set has the nice feature of including detailed information on
the origin of imports and on the destination of exports. This information is useful to
investigate the characteristics of foreign networks, the nature of vertical specialization of
Indian firms and the relationship with performance.

1 This definition is different from the one used by Rauch (1999) that refers to “ties” and cultural proximity
to define trading networks.

2 Derived applying the Levinshon and Petrin (2003) procedure.



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