New Driving Force for <scp>TFP</scp> : The Role of Imported Intermediate Digital Inputs

ABSTRACT This study explores the impact of importing intermediate digital input (IDI) on total factor productivity (TFP). Using panel data from the World Input–Output Database (WIOD) covering 43 countries and 56 industries during 2000–2014, we find that importing IDI significantly contributes to TFP growth. To address potential endogeneity, this study employs an instrumental variable (IV) approach that uses import tariffs on IDI and import‐weighted exchange rates as instruments. We further examine the heterogeneous effects of this relationship based on different economic classifications, types of economic activities, industry factor intensity and type of imported IDI. The results reveal that the impact of importing IDI on TFP growth is more pronounced in developing countries, manufacturing sectors, labour‐intensive industries and intangible IDI imports. Additionally, we analyse the mechanisms through which IDI imports enhance TFP; the results show that importing IDI enhances TFP by accelerating technology adoption (through complementarity with high‐skilled labour) and fostering technological innovation. These findings offer practical implications for industries aiming to maintain competitiveness and sustainable growth in the digital age, and provide a clearer understanding of the relationship between imported IDI and TFP.