Input-trade liberalization and firm export decisions: Evidence from Argentina

Trade openness contributes to the diffusion of the modern technologies embodied in imported intermediate goods, which play a central role in the economic growth of developing countries. This paper investigates the micro-economic effects of input-trade liberalization. Previous work has found positive effects of access to foreign inputs on firm performance. If the availability of imported intermediate goods yields firm productivity gains, we would also expect a positive effect of input-trade liberalization on firm export decisions. This paper contributes to this literature by looking at the relationship between changes in input tariffs and within-firm changes in export status. Using detailed firm-level data from Argentina, I demonstrate that the probability of entering the export market is higher for firms producing in industries that have experienced greater input tariff reductions. These empirical findings are robust to alternative specifications that control for other trade-policy reforms, and industry and firm characteristics.     

Addressing causality in the effect of capital account liberalization on growth

Evidence supporting the positive effects of capital account liberalization on growth is mixed at best. Even after conditioning on the quality of domestic financial institutions, a significant number of studies still find no effect. One possible explanation is reverse causation. If low growth countries liberalize in order to spur growth, the observed correlation between growth and liberalization will underestimate the impact of capital account openness. To eliminate this bias, I instrument capital account liberalization with the average level of openness of other countries to capture the “fad” element in financial liberalization. IV estimates indicate a significant positive effect of liberalization on growth, confirming the predictions of economic theory.     

The labor market effects of trade union heterogeneity

Empirical evidence suggests that the bargaining power of trade unions differs across firms and sectors. Standard models of unionization ignore this pattern by assuming a uniform bargaining strength. In this paper, we incorporate union heterogeneity into a Melitz (2003) type model. Union bargaining power is assumed to be firm-specific and varies with firm productivity. This framework allows us to re-analyze the labor market effects of (i) a symmetric increase in the bargaining power of all unions and (ii) trade liberalization. We show that union heterogeneity unambiguously reduces the negative employment effects of stronger unions. Firm-specific bargaining power creates a link between unionization and the entry and exit of firms, implying a reduction of the unions' expected bargaining power. Moreover, union heterogeneity constitutes an (un)employment effect of trade liberalization. If unions are most powerful in the high-productivity (low-productivity) firms, trade liberalization will increase (decrease) unemployment.     

Volatility of capital flows and financial liberalization: Do specific flows respond differently?

This paper examines the volatility of capital flows following the liberalization of financial markets. Utilizing a panel data set of overlapping data, the paper focuses on the response of foreign direct investment, portfolio flows, and other debt flows to financial liberalization. The financial liberalization variable comes from the chronology and index developed by Kaminsky and Schmukler [Kaminsky, G.L. and Schmukler, S.L., 2003, Short-run pain, long-run gain: The effects of financial liberalization, IMF Working Paper WP/03/34.]. Different types of capital flows are found to respond differently to financial liberalization. Surprisingly, portfolio flows appear to show little response to capital liberalization while foreign direct investment flows show significant increases in volatility, particularly for the emerging markets considered.     

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 economic growth: a case study of Iran

We estimate the impact of trade liberalization and physical and human capital accumulation on Iran’s economic growth during the period 1959?2007. Using co-integration techniques and a vector error correction model, we find a unique long-run relationship between economic growth and its major determinants. These determinants include the physical and human capital stock, the labor force, real non-oil exports, and import tariffs. In addition, the short-term error correction dynamics analysis suggests that trade liberalization has a significant long run positive role in dynamic of growth. Our results support the view that the integration of the Iranian economy with the world economy is undoubtedly welfare improving.     

Modeling services liberalization: The case of Kenya

This paper employs a 55 sector small open economy computable general equilibrium model of the Kenyan economy to assess the impact of the liberalization of regulatory barriers against foreign and domestic business service providers in Kenya. The model incorporates foreign direct investment in business services and productivity effects in imperfectly competitive goods and services markets endogenously, through a Dixit–Stiglitz framework. The ad valorem equivalent of barriers to foreign direct investment have been estimated based on detailed questionnaires completed by specialists in Kenya. We estimate very substantial gains to Kenya from regulatory liberalization in business services, and additional gains from uniform tariffs. The estimated gains increase to 50% of consumption in the long run steady state model, where the impact on the accumulation of capital from an improvement in the productivity of capital is taken into account. Decomposition exercises reveal that the largest gains to Kenya will derive from liberalization of costly regulatory barriers that are non-discriminatory in their impacts between Kenyan and multinational service providers.     

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.     

Finance and sources of growth: evidence from the U.S. states

How does financial development affect economic growth: through its impact on accumulation of physical and human capital or by boosting total factor productivity (TFP) growth? We use a new data set on output, inputs, and total factor productivity for the US states to study this question. Unlike previous cross-country research that tries to disentangle the channels through which financial development impacts growth, we use a plausibly exogenous measure of financial development: the timing of banking deregulation across states during the period 1970–2000. At the same time our new data set allows us to go beyond what was previously done in the state banking deregulation literature and identify whether finance impacts states’ input accumulation or TFP growth. We find, in line with existing cross-country studies, that deregulation boosts growth by accelerating both TFP growth and the accumulation of physical capital without having any impact on human capital. In contrast to the cross-country studies, we also find that the effects of deregulation are largely independent of states’ initial level of development; both rich and poor states grow faster after deregulation. Additionally, since our data set breaks down aggregate output into three sectors: agriculture, manufacturing, and the remaining industries, we are able to show that deregulation accelerates the growth of productivity in manufacturing. This last finding answers an important critique of the banking deregulation studies which asserts that observed growth effects may be coming from the growth of financial industry itself and not from the beneficial effect of finance on other industries, such as manufacturing.     

Non‐linear finance–growth nexus

This paper revisits the question of whether the finance–growth nexus varies with the stages of economic development. Using a novel threshold regression with the instrumental variables approach proposed by Caner and Hansen (2004) to the dataset used in Levine et al. (2000) we detect overwhelming evidence in support of a positive linkage between financial development and economic growth, and this positive effect is larger in the low‐income countries than in the high‐income ones. The data also reveal that financial development tends to have stronger impacts on capital accumulation and productivity growth in the low‐income countries than in the high‐income ones. The findings are robust to alternative financial development measures and conditioning information sets.     

Financial development, liberalization and technological deepening

This paper focuses on examining the effects of financial development and liberalization on knowledge accumulation. The results consistently show that while financial development facilitates the accumulation of new ideas, the implementation of financial reform policies is negatively associated with it. The undesirable effects of financial liberalization are found to operate through the triggering of crises and volatility in the financial system. There is also evidence supporting the hypothesis that financial liberalization reallocates talent from the innovative sector to the financial system, thus retarding technological deepening. Moreover, the findings also suggest that increased R&D activity and the presence of a stronger intellectual property rights protection framework tend to have beneficial effects on knowledge accumulation.     

Asset Bubbles,Unemployment, and a Financial Crisis

A tractable growth model with asset bubbles is presented to demonstrate that a financial crisis caused by a bubble bursting increases unemployment rates. A bubbly asset, which is intrinsically useless, has a positive market value because purchasing the asset is a sole saving method for agents who draw insufficiently low productivity, whereas selling the asset is a fund-raising method for agents who draw high productivity to initiate an investment project. The presence of asset bubbles corrects allocative inefficiency regarding production resources, relocating investment resources from low-productivity agents to high-productivity agents. Accordingly, the presence of asset bubbles can promote capital accumulation. As capital accumulates and output increases, the number of vacant positions increases because firms acquire more funds to cover a search cost. As a result, firms are incentivized to increase employment. However, extrinsic uncertainty may burst asset bubbles and cause a self-fulfilling financial crisis, which is followed by increased unemployment.     

Trade, regulations, and income

We examine the relationship between openness and per-capita income using cross-country data from 126 countries. We find that trade leads to a higher standard of living in flexible economies, but not in rigid economies. Business regulation, especially on firm entry, is more important than financial development, higher education, or rule of law as a complementary policy to trade liberalization. Specifically, after controlling for the standard determinants of per-capita income, our results imply that a 1% increase in trade is associated with more than a one-half percent rise in per-capita income in economies that facilitate firm entry, but has no positive income effects in more rigid economies. The findings are consistent with Schumpeterian “creative destruction”, which highlights the importance of new business entry in economic performance, and with previous firm-level studies showing that the beneficial effects of trade liberalization come largely from an intra-sectoral reallocation of resources.     

从生产函数看河北省经济增长与就业结构的变动

随着资本投入的增长和技术的进步,经济的增长将大量未充分就业的农业劳动力向高生产率部门转移而导致就业结构变化,就业结构的变动又进一步促进了经济的增长。用生产函数将就业结构变动从全要素生产率中分离出来,可以得出就业结构变动对经济增长的推动效应及第一产业就业人口向第二、三产业的流动对经济增长的贡献率。     

The impact of financial constraints on firm survival and growth

We propose a new approach for identifying and measuring the degree of financial constraint faced by firms and use it to investigate the effect of financial constraints on firm survival and development. Using panel data on French manufacturing firms over the 1996–2004 period, we find that (1) financial constraints significantly increase the probability of exiting the market, (2) access to external financial resources has a positive effect on the growth of firms in terms of sales, capital stock and employment, (3) financial constraints are positively related with productivity growth in the short-run. We interpret this last result as the sign that constrained firms need to cut costs in order to generate the resources they cannot raise on financial markets.     

Disorganization in the process of transition Firm-level evidence from Ukraine

Most post-communist economies are characterized by an initial collapse in aggregate output. Blanchard and Kremer (1997) and Roland and Verdier (1997) have recently modelled supply-side distortions – disorganization in the links of production – that can lead to a short-term output contraction after market liberalization and a recovery thereafter. This paper is the first to illustrate and test the effects of disorganization in the transition process by using a unique dataset of 300 Ukrainian firms. Our results show that for firms that existed under central planning, disorganization constrains employment and productivity growth during the transition process to a market economy. We also show that the effects of disorganization are greater the more out-dated the capital stock inheritance from the planning system. In contrast, disorganization plays no role in the determination of employment and productivity growth in newly established private firms.
JEL classification: P0, O0, D0.     

International Financial Liberalization, Corruption, and Economic Growth

This paper examines the effects of capital account liberalization on the long-run growth of a developing economy. A general-equilibrium, endogenous growth model is constructed in which corruption forms an integral part of the governance system of the country. By undermining the profitability of innovations, corruption lowers the rate of return to capital and reduces the rate of technological change. The impact of international financial liberalization on long-run growth in this model can be either positive or negative. A drop in growth is obtained when the level of corruption is high enough to cause domestic rates of return to capital before liberalization to drop below those in the rest of the world. In this case, liberalization generates capital outflows, which act as a constraining force on innovation, reducing the rate of technological change and lowering output growth. On the other hand, if the level of corruption is sufficiently low, the capital account liberalization will serve as a boost to the country's technical change and growth.     

International spillovers,productivity growth and openness in Thailand: an intertemporal general equilibrium analysis

Thailand has experienced economic growth well above world averages from 1960 to the recent crisis. While the controversy over Thailand and East Asian growth has discussed the role of capital accumulation versus productivity, we analyze the general equilibrium interaction between productivity and investment in an intertemporal growth model. The high growth is understood as a prolonged transition path with gradual tariff reduction and endogenous productivity driven by foreign spillover feeding capital investment. Counterfactual analyses show how protection would have reduced growth with productivity and investment slowdown, while shock liberalization would have raised immediate growth with faster convergence to steady state.     

Does the impact of financial liberalization on income inequality depend on financial development? Some new evidence

Instead of empirically finding that higher levels of financial development reduce the positive impact of financial liberalization on inequality, as others do, we come up with the opposite result: financial development strengthens the inequality-raising impact of financial liberalization. We suggest that by, e.g., allowing financial liberalization to lead to more volatility and uncertainty, the model of Bumann and Lensink (2016 “Capital Account Liberalization and Income Inequality.“ Journal of International Money and Finance 61: 143–162.) can be extended as such that also an amplifying instead of reducing effect of financial depth on the impact of financial liberalization on income inequality can be theoretically justified.     

Effects of financial liberalization on financial market development and economic performance of the SSA region: An empirical assessment

This study investigates the role of financial liberalization in promoting financial deepening and economic growth in Sub-Saharan African countries (SSA). We apply the more efficient system GMM estimator in dynamic panel data that combines first difference and original level specification to deal with the problems of weak instruments. Our dataset covers 21 countries in Sub-Saharan Africa over the period of 1981–2009.Additionally, the paper sought to examine both the direct and indirect impacts of financial liberalization policies on economic growth and financial deepening using a much more comprehensive and recent financial liberalization dataset. The econometric results suggest that, on average, financial liberalization is negatively associated with income growth in SSA region. Our findings provide support for the skeptical empirical view of financial liberalization in emerging markets, which show that liberalization, by itself, might be associated with lower economic growth through leading to destabilization, stimulating domestic capital flight and increasing the risk of financial fragility. However, the research finds that financial liberalization does indeed impact positively on financial deepening and resource mobilization in SSA region, after controlling for key macroeconomic factors such as institutional quality, fiscal imbalances and inflation. In fact the study reports a stronger reforms effect for countries that have stronger legal institutions, protection of property rights and higher human capital. Policy-wise, the study finds that institutional and human capital factors are important in explaining growth and financial development; therefore, it is necessary for SSA governments to promote a stronger and more transparent institutional development as we move forward.