Duty Drawbacks, Imported Inputs Duties and Exports: Evidence from Firm-Level Data from Colombia

Using a generalized difference-in-differences approach, this study draws on a firmcountry-product-year level database covering imports and exports from Colombia to study how duty exemptions on imported goods affect export performance. The impactwas estimated depending on the intensity exposure using the Colombian duty drawback policy —Plan Vallejo. Results suggest that input-duty reduction leads to rises in the export quantities and number of varieties, especially for products not benefited by the policy; however, the scheme allows firms to accentuate the negative impact of customs duty increases. The estimated tariff revenue leakage of the duty exemptions is non-negligible in terms of the country’s GDP.