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.     

Trade Liberalization and Productivity Growth: Time-Series Evidence from Australian Manufacturing

This paper uses historical annual data for 27 years from 1968-69 on eight two-digit ANZSIC industries to assess the impact of the changes in industry assistance on economic efficiency. The empirical analysis shows that a 1 per cent decline in the nominal rate of assistance leads to between O.J 8 and 056 per cent gain in total factor productivity, the latter our measure of economic efficiency. This finding has strong policy implications for the future of tariff reform in the manufacturing sector.     

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.     

Trade Liberalization and Firm Productivity: Evidence from Chinese Manufacturing Industries

This paper examines the impact of tariff reduction following China's World Trade Organization (WTO) entry on the productivity of Chinese manufacturing firms using a firm‐level panel database that comprises all of China's manufacturing firms with an annual turnover above 5 million yuan and that spans the period of 2000–2006. An instrumental variable estimator is used to account for the endogeneity of the tariff reduction. The results indicate that China's trade liberalization in the five years following its WTO entry has led to a 0.94% annual increase in total factor productivity for Chinese manufacturing firms. However, the overall productivity gain from the tariff reduction is a net result of a productivity depressing effect of output tariff reduction and a productivity enhancing effect of input tariff reduction. Both effects have diminished in magnitude over the years after China joined the WTO. Firm heterogeneity and turnover plays an important role in generating gains from trade liberalization. The surviving firms have managed to cope with and take advantage of lower tariffs. The extent to which the tariff reduction affects Chinese firms' productivity is also dependent on the ownership structure of the firms with foreign‐invested firms being the clear winner.     

Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants

This paper empirically investigates the effects of liberalized trade on plant productivity in the case of Chile. Chile presents an interesting setting to study this relationship since it underwent a massive trade liberalization that significantly exposed its plants to competition from abroad during the late 1970s and early 1980s. Methodologically, I approach this question in two steps. In the first step, I estimate a production function to obtain a measure of plant productivity. I estimate the production function semiparametrically to correct for the presence of selection and simultaneity biases in the estimates of the input coefficients required to construct a productivity measure. I explicitly incorporate plant exit in the estimation to correct for the selection problem induced by liquidated plants. These methodological aspects are important in obtaining a reliable plant-level productivity measure based on consistent estimates of the input coefficients. In the second step, I identify the impact of trade on plants' productivity in a regression framework allowing variation in productivity over time and across traded- and nontraded-goods sectors. Using plant-level panel data on Chilean manufacturers, I find evidence of within plant productivity improvements that can be attributed to a liberalized trade for the plants in the import-competing sector. In many cases, aggregate productivity improvements stem from the reshuffling of resources and output from less to more efficient producers.     

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]     

Endogenous Growth and Trade Liberalization

We develop an endogenous growth model in which trade liberalization has a positive effect on growth. This effect does not depend on marginal re-allocations nor on knowledge-spillovers. Rather, it is due solely to the increase in market size following the integration of product markets. Our result contradicts a widely-help view that trade on physical goodsper sehas no consequences for long-run growth.[F15]     

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.     

Effects of Multilateral Trade Liberalization on Prices*

To analyze the effects of simultaneous tariff reductions by multiple importing countries on prices, we construct a simple three‐country model where a good is produced by a monopolist with nonconstant marginal cost and imported by two countries. We compare two representative tariff‐reduction formulas: the “fixed‐amount” and the “uniform percentage” reductions. The uniform percentage reductions may increase the consumer price in the importing country, whose initial tariff is lower. Thus, importing countries with relatively low tariffs may prefer a bilateral trade agreement to a multilateral one to ensure consumer gains.     

A Model of Trade Liberalization in Services*

This paper develops an intra‐industry service trade model taking into account important features of services. We find that service trade liberalization between identical economies is welfare enhancing when the pre‐trade domestic market liberalization is limited. This holds regardless of the degree of trade liberalization and of the mode of supply. However, if the pre‐trade environment is characterized by a free‐entry equilibrium, then service trade liberalization is not necessarily welfare improving. It is welfare enhancing if the trade liberalization is full and the mode of supply is cross‐border. The gain from trade in our model comes from the improvement in service quality—better matching between consumers’ ideal varieties and firms’ product specificity. The implications for the mode of supply in service trade are also explored.     

Trade Liberalization,Firm Selection,and Variety Growth

Recent empirical findings indicate that when trade is liberalized both firm selection takes place and product variety increases. Each of these two stylized facts has its own seminal theory. But how can they arise together? This paper presents a model of heterogeneous, multi‐variety firms that provides an intuitive explanation. When trade is liberalized efficient foreign exporters enter and push out the least efficient domestic firms. Fewer firms remain in total. But exporters endogenously offer more variety than domestic firms. The entry of variety‐rich foreign firms unambiguously dominates the decrease in the number of firms. Thus, total variety increases.     

Patterns of International Capital Flows and Productivity Growth: New Evidence

Recent evidence from developing and emerging economies shows a negative correlation between growth and net capital inflows, a contradiction to neoclassical growth theory. I provide updated and disaggregated evidence on the origins of this puzzle. An analysis of the components of capital flows and of gross portfolio positions shows that foreign direct investment is directed towards countries with the highest growth rates, but that portfolio investment outflows exceed these inflows. Liberalized capital accounts further exacerbate this pattern. My results suggest a desire for international portfolio diversification in liquid assets by fast‐growing countries lies at the heart of the puzzle.     

Trade Liberalization and Wage Inequality: Evidence from the U.S. States

This paper examines the relationship between trade liberalization and wage inequality for 50 U.S. states during the period from 1999 to 2008. The Difference-in-Differences and fixed effects methods are employed to evaluate the effect of trade liberalization on wage inequality in the U.S. states. Empirical results reveal that trade liberalization and de-unionization do increase the wage inequality between skilled and unskilled workers. Evidence shows skill-biased technological change has no significant impact on rising wage inequality. As Difference-in-Differences estimation on time-series cross sectional data involves many years, the conventional standard errors often understate the standard deviation of the estimators. This paper employs the standard bootstrapping procedure and the clustering error procedure to correct the problem, and all sign patterns still hold.     

Endogenous Growth and Trade Liberalization Between Small and Large Countries

The paper combines insight from new trade theory and R&D-based endogenous growth models to argue that there are ambiguous growth effects of trade liberalization between countries that differ in terms of the size of their home markets. In particular, trade liberalization may reduce R&D incentives in countries with low purchasing power without invoking parallel increases in countries with high purchasing power. The paper also considers the case of imperfect international knowledge spillovers, and demonstrates that complete trade liberalization may affect the growth rate negatively.     

The Effects of Trade Liberalization On Cost-Reducing Horizontal Mergers*

This paper analyzes the effects of tariff reductions on horizontal mergers in a Cournot oligopoly in a two-country world. It is shown that for mergers between two domestic firms and for cross-border mergers which supply both markets from a foreign plant, unilateral tariff reduction encourages mergers which concentrate market power at the expense of mergers which reduce cost, while bilateral tariff reductions have the opposite effect, encouraging mergers which significantly reduce cost. Cross-border mergers which continue to supply each market from a local plant are discouraged by both unilateral and bilateral tariff reduction.     

Endogenous Growth and International Trade*

This paper clarifies and slightly generalizes the basic endogenous-growth model. I prove the basic theorems without the usual assumption that the distribution of knowledge around the world is irrelevant. Results are stated in terms of lemmas, theorems, and corollaries in order to bring out as clearly as possible the role of each assumption.     

Testing the Linkages between Trade and Productivity Growth

The authors examine the effect of trade on productivity growth using data from nine manufacturing industries across 12 OECD countries over the period 1978–97. Because causality between productivity growth and trade share runs both ways, geographical characteristics of countries are used to instrument for average bilateral trade volumes over the 20‐year period. In addition, to exploit the time‐series nature of the data, the authors construct a panel dataset and employ dynamic panel data techniques. After controlling for industry‐specific heterogeneity, the results indicate that increased exposure to trade, in particular higher import volumes, exerts a positive influence on industries' productivity growth. However, the effect is rather small.     

Trade Liberalization and the Profitability of Mergers: a Global Analysis*

We analyze the effects of bilateral tariff reductions on the profitability of cost‐reducing horizontal mergers. Given Cournot competition in a two‐country world, for any positive tariff below a certain threshold, marginal trade liberalization is shown to encourage only those domestic mergers with sufficiently large cost‐savings and to discourage the rest. For tariffs close to, but smaller than, the prohibitive tariff, however, marginal trade liberalization necessarily encourages all domestic mergers. Moreover, we show that for a given level of cost‐savings, the impact of marginal trade liberalization may not reliably predict that of nonmarginal liberalization. Although at high tariffs, domestic mergers are shown to be unambiguously more profitable than cross‐border mergers, near free trade, mergers which yield the most cost‐savings become the most profitable. Thus, when comparing domestic and cross‐border mergers, trade liberalization encourages the type which yields the most cost‐savings.     

加工贸易、企业生产率和关税减免-来自中国产品面的证据

本文研究两个问题:一是不断深化的进口关税减免对我国企业生产率提升有何影响,二是企业参与加工贸易能否有助于促进企业生产率的提升。一方面,最终产品的进口关税减免强化了企业间在本土市场的竞争,从而有助于提高生产率;另一方面,企业参与加工贸易能得到额外的贸易所得,从而促进企业生产率的增长。通过采用2000—2006年间我国外贸产品的海关数据和规模以上制造业企业生产方面的大型微观数据,本文构建了各企业所面临的关税税率,并精确计算出企业的全要素生产率。基准回归结果显示,关税下降10%,企业生产率会上升大约3%—6%。更重要的是,在考虑企业间由所有权造成的差异性后,发现加工贸易企业相对于非加工贸易企业有更高的生产率。