Trade liberalization and volatility: Evidence from Indian firms

I look at the impact of trade liberalization on sales growth volatility of firms. Exploiting India’s externally imposed trade reform to identify trade liberalization effects, I find that while a fall in the tariff on the final product produced by the firm is associated with an increase in volatility in Indian manufacturing firms, a fall in the tariff on intermediate inputs is associated with a decrease in volatility, with the latter effect dominating the former. I hence propose an additional channel for gains from trade liberalization to the ones documented in the literature.     

Trade liberalization, antidumping, and safeguards: Evidence from India's tariff reform

This paper is the first to use product-level data to examine empirically whether countries use antidumping and safeguard exceptions to unwind commitments to lower tariffs in the face of domestic political-economic pressure. We focus on the case of India, a country that underwent a major exogenous tariff reform program in the early 1990s and subsequently initiated substantial use of safeguard and antidumping import restrictions. We first estimate structural determinants of India's import protection using the Grossman and Helpman (1994) model and provide evidence from its pre-reform tariff data of 1990 that is consistent with the theory. We then re-estimate the model on the Indian tariff data after the trade liberalization is complete and find that the model no longer fits, a result consistent with theory and evidence provided in other settings that India's 1991-1992 IMF arrangement can be interpreted as resulting in an exogenous shock to India's tariff policy. However, when we re-estimate the model on data from 2000-2002 that more completely reflects India's cross-product variation in import protection by including both its post-reform tariffs and its additional non-tariff barriers of antidumping and safeguard import protection, the significance of the Grossman and Helpman model determinant estimates is restored. We interpret these combined results as evidence that India unwound its commitment to reduce tariffs through use of antidumping and safeguard protection in the face of political-economic pressure. The estimates are also economically important and provide one explanation for separate results in the literature that the magnitude of import reduction associated with India's use of antidumping is similar to the initial import expansion associated with its tariff reform. Finally, we interpret the implications of our results for the burgeoning research literature examining the effects of liberalization on India's micro-level development.     

Trade liberalization and the wage–skill premium: Evidence from Vietnamese manufacturing

This paper examines the wage–skill premium in Vietnamese manufacturing since the reform programme. The effects of tariff reductions on the wage–skill premium are analyzed in the presence of exporting opportunities, foreign investment, and research and development. The findings with firm‐level data reveal that a 10‐ percentage point fall in output tariffs is associated with a 4 percent increase in the wage–skill premium. The wage–skill premium in foreign‐invested enterprises is 40 percent higher than that of domestic enterprises. Trade liberalization influences the wage–skill premium in the presence of foreign ownership and R&D, while its impact on the skill premium only works through exporting.     

Trade liberalization and productivity dynamics: evidence from Canada

Abstract.  The paper investigates the productivity effects of the Canada-U.S. Free Trade Agreement on Canadian manufacturing. It finds that Canadian tariff cuts increased exit rates among moderately productive non-exporting plants. This led to the reallocation of market share towards highly productive plants, which explains the aggregate productivity gains observed when Canadian tariffs were reduced. The U.S. tariff cuts led to the within-plant productivity gains in exporters and, especially, new entrants into the export market. Any lack of output responses and labour-shedding as a consequence of the FTA was experienced by non-exporting plants, while exporters captured the gains from the FTA.     

Trade liberalization and markups: Micro evidence from China

This paper presents evidence from highly disaggregated Chinese firm-product data that, given productivity, input tariff reductions induce an incumbent importer/exporter to increase product markups. We further investigate empirically the mechanisms underlying this trade liberalization effect, and find that input tariff reductions decrease marginal costs, and their effects on markup adjustments are more profound among firms with higher import dependence. Moreover, we exploit unique features of Chinese data by comparing results for two trade regimes: ordinary trade (wherein firms pay import tariffs to import) and processing trade (wherein firms are not subject to import tariffs). While the aforementioned trade liberalization effects and mechanisms only apply to ordinary trade, processing trade samples are used in a placebo test. The paper also shows that more productive firms charge higher markups for products. All these findings are robust to alternative markup measures including one estimate using physical-quantity output data, different production function specifications, a subsample consisting only of pure exporters, and estimations based on our theoretical derivations.     

Trade liberalization and unemployment: Theory and evidence from India

A widely held view among the public is that trade liberalization increases unemployment. Using state and industry-level unemployment and trade protection data from India, we find no evidence of any unemployment increasing effect of trade reforms. In fact, our state-level analysis reveals that urban unemployment declines with trade liberalization in states with flexible labor markets and larger employment shares in net exporter industries. Moreover, our industry-level analysis indicates that workers in industries experiencing greater reductions in trade protection were less likely to become unemployed, especially in net export industries. Our results can be explained within a theoretical framework incorporating trade and search-generated unemployment and some institutional features of the Indian economy.     

Financial liberalization,financial sector development and growth: Evidence from Malaysia

The objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. Using time series data from 1960 to 2001, we conduct cointegration and causality tests to assess the finance-growth link by taking the real interest rate and financial repression into account. The empirical evidence suggests that financial liberalization, through removing the repressionist policies, has a favorable effect in stimulating financial sector development. Financial depth and economic development are positively related; but contrary to the conventional findings, our results support Robinson's view that output growth leads to higher financial depth in the long-run.     

Trade liberalization,democratization, and technology adoption

A general equilibrium theory with heterogeneous skills predicts a complementarity between trade and democracy in creating demand for superior technologies. Trade liberalization or democratization alone may lead to vested interests that limit technology adoption. We use panel data on technology adoption, at a disaggregated level, for the period 1980–2000. Exploiting within-country variation over time and the heterogeneous timing of trade liberalization and democratization, we document a significant and sizable positive interaction between trade openness and democratization for technology adoption. The result that transitions to open democracies are beneficial for technological dynamics is robust to a large set of checks.     

The impacts of imports and trade liberalization in Brazil: Insights from an aggregate cost function

Brazil has faced and continues to struggle with difficult economic challenges, including achieving noninflationary economic growth and a manageable external deficit. This paper presents the results of the estimation of an aggregate translog cost function with inputs of domestic capital and labor and imports and outputs of consumption and investment goods. The resulting calculated elasticities give insights into the relationships among the inputs, as well as the possible impacts of further reducing international trade barriers. The findings suggest that all of the inputs are substitutes for one another and that an increase in imports may have at least short-run negative effects on the demand for domestic capital and labor. However, imports appear to be particularly important in the production of investment goods, so an increase in imports may result in a more than proportionate increase in the output of those products and enhance the long-term growth of the economy. The responses to current challenges facing Brazil will affect its future economic growth as well as have a broader impact on the international scene. The results described here may help to inform policy makers as they address these issues, particularly with respect to international trade policies.     

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.     

Trade liberalization,firm entry,and income inequality

This paper examines the short‐ and long‐run effects of trade liberalization via tariff reductions on income inequality in an economy, which is characterized by an imperfectly competitive urban manufacturing sector and a perfectly competitive rural agricultural sector. Tariff reductions reduce domestic output in the importable urban manufacturing sector, leading to shifts of capital from the urban sector to the rural agricultural sector. This can narrow the wage gap between skilled and unskilled labor in the short run. However, the lowered capital cost attracts new firms, and subsequently excessive entry of firms, to the urban manufacturing sector. This firm entry effect can mitigate the favorable effect of tariff reductions on wage inequality in the long run. Empirical study confirms the findings.     

Tax evasion in Kenya and Tanzania: Evidence from missing imports

In this paper we estimate the amount of tax evasion in customs authorities in both Kenya and Tanzania by calculating measurement errors in reported trade flows between the two countries and correlate those errors with tax rates. We find that the measurement error is correlated with the tax rates in Tanzania. We also introduced a third country into our analysis, the United Kingdom, and tax evasion seems to be more severe in trade flows between Kenya and Tanzania compared to trade flows between the United Kingdom and Kenya/Tanzania. Finally we also find that the tax evasion coefficient is lower in the Kenya–United Kingdom case compared to the Tanzanian–United Kingdom case which suggests that tax evasion is more severe in the Tanzanian customs authority.     

Financial liberalization,disaggregated capital flows and banking crisis: Evidence from developing countries

The aim of this paper is to examine whether financial liberalization has triggered banking crises in some developing countries. We focus in particular on the role of capital flows as their volatilities threat economic stability and growth. In the empirical model, based on panel logit estimation, we use the two common financial liberalization indicators (defacto and dejure) for a panel of 58 developing countries observed during the period 1984–2007. Unlike the previous studies, this paper reveals that both indicators of financial liberalization did not trigger banking crises. However, the results show that foreign debt liabilities to total liabilities and foreign direct investment liabilities to total liabilities increase the likelihood of banking crises.     

Input trade liberalization and import switching: Evidence from Chinese firms

This paper investigates how input liberalization affects firm import behavior. Using comprehensive production and trade data of Chinese firms, the paper shows that firms switch import sources from developing countries to developed countries as Chinese input tariffs fall. This finding is evident for import value and import scope. The observation holds after excluding the possible influence of reducing processing trade. The paper further demonstrates that the mechanism can be attributed to quality upgrading and innovation led by input cost reductions. The analysis handles the possible endogeneity problem, and the findings are robust and significant to different empirical methodologies and measurements.     

Cointegration,error correction mechanism and trade liberalization: the case of the Spanish imports of manufactures

This paper examines the quit behaviour of members of the Federal Reserve Board of Governors. We find that the probability of a member continuing is lower when the member is an economist, when the member comes to the Board from the private sector, and when their policy views differ from the Board as a whole. In addition, we find evidence that the President can exert influence on the Fed by the power of appointment. And in contrast with what one might expect, we find that salaries on the Board relative to the private sector do not seem to be an important factor in determining the decision to continue service on the Board.     

Trade liberalization,technology, relative factor supplies and the relative wage: evidence from the South

There is much controversy about the role that trade liberalization, technological change and relative factor supplies have played in bringing about changes in the relative wage of the unskilled workers. Much of the empirical work on this issue has focused on the industrial countries and paid little attention to developing countries. To fill this gap, this study develops a special data set to examine the relative wage behaviour of a large number of developing countries. An empirical model based on the theory is used to test different explanations of the relative wage change. As predicted by the technology explanation, the empirical analysis in the study finds a significant negative link between the relative wage of unskilled workers and the technology index. The analysis, however, does not find a significant role for labour supplies or trade liberalization in determining the relative wage of unskilled–skilled workers.     

Trade costs, wage rates, technologies, and reverse imports

Abstract .  This paper explores the effects of transport costs, tariffs, and foreign wage rates on the domestic economy in the presence of reverse imports, with special emphasis on inter-firm cost asymmetry in an international oligopoly model. To serve the domestic market, a foreign firm produces in the foreign country, while two domestic firms produce either at home or abroad. Surprisingly, an increase in the foreign wage rate may increase the profits of a firm producing in the foreign country. Even if all firms produce in the foreign country, an increase in the foreign wage rate may improve domestic welfare.     

Trade liberalization and capacity utilization: New evidence from the Turkish rubber industry

This study empirically tests the hypothesis that trade liberalization increases capacity utilization. It calculates capacity utilization for the Turkish rubber industry by using a production theory framework. More specifically, plant-level capacity utilization levels are calculated using a Generalized Leontief cost function system. Capacity utilization levels were low but improved when the trade regime shifted from a restrictive to a more liberalized one. The size and location of plants were two significant factors which created capacity utilization differences within the industry. However, capacity utilization levels appeared to improve primarily because of trade liberalization.Also, a scholar-in-residence, Department of Economics, Duke University. My particular thanks go to Patrick Conway, Marjorie McElroy, Edward Tower, participants of the International Economics Workshops at Duke University, and the anonymous referee for helpful suggestions. Any errors are mine.