similar. The correlation in the change over time is also negative, but at -0.23 their evolution over time is less closely related than the average sourcing tendency.

Figure 2 again contains the same three graphs as in the case of the first indicator, but now showing the fraction of imported inputs by small, privately-owned, domestic manufacturing firms. We see again two mass points in the distribution, but the mass point for full foreign sourcing is much less important. Nevertheless, it is remarkable that almost 10% of these small manufacturers report to be importing at least 95% of all their inputs.

Less surprising is that many domestic firms report no imports at all. Over the entire sample of domestically owned manufacturing firms, this fraction stands at 51%. Comparing by firm size, 60% of small firms report no imported inputs which is quite a bit smaller than the 40% of larger firms (the dashed line) that report no imported inputs. When imports are positive, they are relatively large. Firms that import any inputs, import on average 57% of their total needs and this average still reaches 45% when we exclude firms that import everything.

Differences across countries in the second graph are again very large. For a large number of countries, small manufacturers import very little, i.e. less than 10%, but this experience is by no means universal. The number of countries in the successive bins with higher import averages declines only gradually. While 13 countries have an average between 5% and 20%, there are still 10 countries with an average between 50% and 65%.

The difference with the average import tendency of larger firms, which is shown by the dashed lines in Figure 2, is not that large. The mean difference is only 10 percentage points: 33% for small manufacturers versus 43% for larger manufacturers. Given that median employment for larger firms is seven times higher, 8 versus 55 full-time equivalent workers, the sourcing patterns of these two groups of firms are relatively similar. The difference is even smaller if firms not importing anything are omitted.

Foreign sourcing by small firms is on average not growing over time. It decreased for exactly half of all countries when we compare the last two survey years. In 5 of these countries, the decline in the average import share even exceeds 25%, while such a large increase is never observed. The average for many countries declined even though the potential for growth tends to be larger than the potential for decline, as the average across countries only stands at 22%.

This evolution of greater importance of domestically sourced inputs that we documented for MNEs in Figure 1 mirrors the pattern for small, domestic manufacturers in Figure 2. In the former case, it could be interpreted as a positive evolution as foreign firms tend to produce higher quality products and will only source locally when they find inputs of acceptable quality. Javorcik (2004) even presents evidence that MNEs often help domestic suppliers improve their productivity and output quality. Greater domestic sourcing by small domestic firms is less of a positive development, as we expect these firms to rely predominantly on domestic markets. A high and increasing fraction of locally sourced inputs could indicate high or increasing barriers to access foreign inputs or a focus on lower quality outputs for which the quality of domestically sourced inputs suffices.

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