Testing creative destruction in an opening economy

This paper analyses the relationship between trade liberalization and economic growth using a Schumpeterian framework of technological innovation and applies it to sector‐level South African data. The framework examines direct and indirect effects of trade liberalization on productivity growth. Indirect impacts operate through a differential impact of trade liberalization on firms conditional on their distance from the international technological frontier. Results confirm positive direct impacts of trade liberalization. Results confirm also that the greatest positive impact of trade liberalization will be on sectors that are close to the international technological frontier and that experienced a low level of product market competition before liberalization.     

New Evidence from Brazil on Trade Liberalization and Productivity Growth*

This article presents evidence on the positive effect of international trade on productivity growth using industrial level data preceding and following Brazil's trade liberalization in 1988–90. Our data reveal large and widespread productivity improvement across industries after barriers to trade were drastically reduced. Econometric results confirm the association between trade liberalization and productivity growth and show that the impact was indeed substantial: The observed tariff reduction in the period brought a 6% estimated increase in total factor productivity growth rate and a similar impact on labor productivity.     

Trade Liberalization and Productivity Growth: Evidence from Indian Manufacturing

The impact of trade liberalization on productivity growth is still an empirical issue; the theoretical literature is as yet unclear on the direction of any such association. This paper develops an analytical framework and employs it to empirically test whether trade liberalization in Indian manufacturing has raised total factor productivity (TFP) growth. The answer is in the affirmative. The results also support a key postulate of the new growth theories, that liberalization of the intermediate-good sectors has a larger favorable impact on TFP growth than that of the final-good sectors.     

Reassessing the productivity gains from trade liberalization

This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country‐industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non‐tariff barriers. Finally, we find suggestive evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.     

Trade and market selection: Evidence from manufacturing plants in Colombia

We examine the link between trade liberalization and aggregate productivity, with a focus on improved market selection resulting from a reduction in trade barriers and in the dispersion of these barriers across producers. Our analysis exploits tariff changes across sectors after the Colombian trade reform. An additional advantage of our analysis is that our TFP measure does not include demand and price effects. We find that reduced trade protection makes plant survival depend more closely on productivity. Using a dynamic simulation, we find that enhanced selection increases aggregate productivity substantially. Trade liberalization also increases productivity of incumbent plants and improves the allocation of activity. We find larger effects on allocative efficiency with our TFP measure than with a traditional measure including price effects.     

Quota removal and firm-level offshoring: Theory and evidence

Recent literature indicates that offshoring can effectively increase firm productivity and improve product quality. Therefore, global value chains have increased in importance. In this paper, we investigate the impact of export growth on firm-level offshoring. Removal of the quota on textile and clothing products in importing countries boosts China's exports of quota-restricted products. This removal offers a quasi-natural experiment. Using a difference-in-differences approach, we find that export growth induced by the quota removal increases the extensive and intensive margins of firm-level offshoring. The impact is more pronounced on domestic firms and firms that are engaged in ordinary trade. Our findings suggest additional gains from trade liberalization: trade liberalization not only boosts exports, but also enhances firm productivity and product quality through encouraging firm-level offshoring.     

Trade Liberalization and Productivity Growth

This paper presents a trade model with firm‐level productivity differences and R&D‐driven growth. Trade liberalization causes the least productive firms to exit but also slows the development of new products. The overall effect on productivity growth depends on the size of intertemporal knowledge spillovers in R&D. When these spillovers are relatively weak, then trade liberalization promotes productivity growth in the short run and makes consumers better off in the long run. However, when these spillovers are relatively strong, then trade liberalization retards productivity growth in the short run and makes consumers worse off in the long run.     

Does international openness affect the productivity of local firms?

This paper examines how international openness can change firm productivity in south‐eastern Europe (SEE), a crucial question for middle‐income countries. Using firm‐level data for six transition economies over the 1995–2002 period, we identify whether foreign ownership and propensity to trade with more advanced countries can bring about higher learning effects. We find that: (i) foreign ownership has helped restructure and enhance the productivity of local firms in four out of six countries; (ii) exporting to advanced markets has a larger impact on productivity growth in four countries, especially when the firm's absorptive capacity is taken into account; (iii) in contrast, exporting to the less competitive markets of the former Yugoslavia seems to negatively affect productivity growth in three countries; and (iv) learning effects from importing are similar to those from exporting. Our results suggest that trade liberalization is not uniformly beneficial. Regional composition of trade flows and absorptive capacity of local firms matter. Thus, trade liberalization within the SEE region may not provide a substitute for a general trade liberalization which includes access to the more competitive markets of countries belonging to the Organization for Economic Co‐operation and Development.     

Trade Policy and Productivity Growth in OECD Manufacturing *

Trade liberalization may promote economic growth in a number of ways, including by accelerating the rate of technological change. Firms that face more intense import competition may be spurred to greater rates of innovation; firms which export may absorb new technologies through their contact with international markets. This paper examines evidence on trade policy and productivity growth for a sample of thirteen OECD countries and including eighteen manufacturing sectors, using data primarily from the 1980s. Within individual sectors, there are strong productivity convergence effects within the OECD. After controlling for convergence, we find a positive association between high rates of productivity growth and low tariffs, and between high productivity growth and strong export performance. We found no particular association between high productivity growth and import penetration. The results are consistent with the possibility of positive linkages between trade liberalization and accelerated productivity growth. [F1, O4]     

双循环重心变化、贸易自由化与我国生产率增进*——基于资源重新配置效率视角

构建双循环新发展格局、推动高质量发展是中共中央关于“十四五”规划与2035年远景目标的战略决策。双循环新发展格局涉及双循环重心变化问题，高质量发展的要义之一是生产率增进。本文将双循环重心变化嵌入异质性企业贸易模型，从资源重新配置效率视角，演示双循环重心由国际向国内转变对贸易自由化的生产率增进效应的影响，而后利用1998—2013年中国制造业企业数据进行实证检验。研究发现，以国际循环为主体的贸易自由化导致集约型资源错配和扩展型资源错配，从而抑制行业总生产率增长；而以国内循环为主体的贸易自由化则有助于提高行业内资源配置效率，从而促进行业总生产率增长。因此，转变过度依赖国际大循环的经济发展模式，构建以国内大循环为主体、国内国际双循环相互促进的新发展格局是增进贸易自由化的生产率效应，推动对外贸易高质量发展的关键所在。     

R&D Policies and Endogenous Growth: A Dynamic General Equilibrium Analysis of the Case for Canada*

This paper utilizes a general equilibrium R&D model of endogenous growth via increasing capital variety to examine the impact of alternative policies on productivity and economic growth. The model is calibrated using data from the Canadian economy. Findings reveal that direct incentives such as subsidies to R&D activities would have the highest productivity impact on the Canadian economy, that an increase in subsidies to the users of R&D capital (output) would have a positive but smaller impact, and trade liberalization would have minimal effects on productivity growth via its impact on international R&D spillovers.     

Income,taxes and employer pension contributions

This paper empirically examines the effects of a change in foreign trade regime on productivity growth. Based on a Generalized Leontief factor demand function system, total factor productivity growth (TFPG) rates are calculated for the Turkish rubber industry during a substantial trade liberalization in the 1980s: TFPG was significantly higher following trade liberalization. Technological change was the major contributor to this growth. When a panel data estimation technique is used to explain technological change, the effects of trade liberalization become clearer: a one percentage point increase in the protection level led to more than a one percentage point (1.27) decline in the technological change rate.     

Trade Liberalization and Heterogeneous Technology Investments

We propose a trade model where heterogeneous firms decide on a productivity‐enhancing technology investment. The model analyzes the impact of multilateral trade liberalization on firm‐ and industry‐level productivity. Freer trade increases the incentives to invest in technology by raising export profits. It also dampens these incentives, however, as profits stemming from domestic sales are reduced. Only exporters benefit from the former positive effect. The shape of the distribution of efficiency draws, the level of trade costs and the technology intensity of the industry are key elements removing the ambiguities regarding the net impact of trade liberalization.     

Globalization and labor market outcomes: Wage bargaining, search frictions, and firm heterogeneity

We introduce search unemployment into Melitz's trade model. Firms' monopoly power on product markets leads to strategic wage bargaining. Solving for the symmetric equilibrium we show that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves average productivity. We show that this condition is likely to be met by a reduction in variable trade costs or by entry of new trading countries. Calibrating the model shows that the long-run impact of trade openness on the rate of unemployment is negative and quantitatively significant.     

PRODUCTIVITY MATTERS FOR TRADE POLICY: THEORY AND EVIDENCE*

In the growth literature that investigates the effect of trade liberalization on productivity, nearly all studies assume that trade policy is determined independently of productivity, and, hence, it is exogenous. I show, both theoretically and empirically, that this assumption is not valid in general. I find that in Colombia more productive sectors receive more protection and the sectors with higher productivity gains are liberalized less even in the presence of a large unilateral liberalization shock that affects all sectors. Researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias.     

The Impact of Input and Output Tariffs on Firms' Productivity: Theory and Evidence

This paper studies the impact of trade liberalization on productivity. It shows that when intermediate inputs are not highly differentiated, lowering input tariffs leads to a rise in within‐firm productivity and wages, and lowering output tariffs has the opposite effect. When intermediate inputs are highly differentiated, the conclusions reverse. These predictions are supported by the data, given by the industrial survey from INEGI (Mexico's Insitituto Nacional de Estadistica Geografia e Informacion) in the period 1984–90. The paper yields estimates for the elasticity of substitution among intermediate inputs, which are useful in determining the direction of the impact of trade liberalization. These estimates can be used to assess the gains from trade liberalization.     

Trade and productivity: Self-selection or learning-by-exporting in India

Recent literature tried to explain the Indian growth miracle in different ways, ranging from trade liberalization to industrial reforms. Using data on Indian manufacturing firms, this paper analyzes the relationship between firm's productivity and export market participation during 1991–2004. While it provides evidence of the self-selection hypothesis by showing that more productive firms become exporters, the results do not show that entry into export markets enhances productivity. The paper examines the explanation of self selection hypothesis for total factor productivity differences across 33,510 exporting and non-exporting firms. It uses propensity score matching to test the learning-by-exporting hypothesis. In line with the prediction of recent heterogeneous firm models of international trade, the main finding of the paper is: more productive firms become exporters but it is not the case that learning by exporting is a channel fuelling growth in Indian manufacturing.     

Trade Liberalization and Wage Inequality: Evidence from India

We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to most earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization‐induced productivity increases at the firm level, which get passed on to industry wages. We also find that trade liberalization has led to decreased wage inequality between skilled and unskilled workers in India. This is consistent with the magnitude of tariff reductions being relatively larger in sectors with a higher proportion of unskilled workers.     

The influence of international trade on labour productivity in services: The case of Brazil in the 1990s

In the developing world, services account for a rising share of domestic employment and international trade. Thus, it is important to know whether trade liberalization contributes to labour productivity in services. We explore this question, examining the 1990–2000 Brazilian trade liberalization. We find that growth of imports and exports strengthened labour productivity in services, but the contribution was smaller in subsectors with more college graduates, and this negative offset was larger in subsectors that received large foreign direct investment (FDI) inflows. Improved access to imported manufactured intermediate inputs raised downstream services' labour productivity and downstream manufacturing firms benefitting from tariff cuts enacted by trade partners generated spillovers that improved the labour productivity of upstream service subsectors. However, FDI inflows and investments in human and physical capital modified these downstream factors. We conclude that the Brazilian trade liberalization strengthened productivity in services, but unequally across subsectors.     

Free Trade, Growth, and Convergence

Can trade liberalization have a permanent affect on output levels, and more important, does it have an impact on steady-state growth rates? The model emphasizes the role that knowledge spillovers emanating from heightened trade can have on income convergence and growth rates during transition and over the long run. Among the results of the model, unilateral liberalization by one country reduces the income gap between the liberalizing country and other, wealthier countries. From the long-run growth perspective, unilateral (and multilateral) liberalization generates a positive impact on the steady-state growth of all the trading countries.