Heterogeneity of imported intermediate inputs and labour: evidence from India’s input tariff liberalization

This article explores whether the nature of imports matters when examining the effects of trade on plant-level labour outcomes. Previous literature that examines this question mainly considers imported intermediate inputs as a homogenous group and is unable to reach a consensus on the effects of input tariff liberalization on employment and wages of skilled and unskilled workers. Exploiting detailed product-level information available on intermediate inputs from plant-level data for the Indian manufacturing sector, I distinguish between plants that import mainly for quality considerations as opposed to plants that seek imports as cheaper alternatives to domestic inputs. I find that strong complementarities exist between skilled workers and imported inputs for plants importing high-quality inputs. For plants importing intermediate inputs mainly as a cost-cutting strategy, input tariff liberalization leads to an increase in employment of both skilled and unskilled workers, but a decline in skill composition. This can best be explained as a strategy that achieves economies of scale. On average, as input tariffs liberalize, importing plants employ more workers and pay higher wages than non-importing plants.     

Trade Costs,Resource Reallocation and Productivity in Developing Countries

New trade models with heterogeneous firms suggest that international trade plays an important role in reallocating resources from low to high productivity plants. We use plant‐level data from Chile and measures of trade costs that include tariffs and freight rates to analyze the importance of this trade‐induced market selection process. We find that trade costs affect the reallocation process through the various channels predicted by the theory; however, the effects are approximately half of those reported for the US. We also find that while the tariff rate is responsible for preventing some of the reallocation, transportation costs have the most limiting role in terms of the number of channels affected.     

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.     

Sectoral structure, heterogeneous plants, and international trade

I examine the impact of trade policy on manufacturing plant behavior by developing a methodology that addresses both plant heterogeneity and intersectoral resource reallocation. A plant-level microsimulation based upon the industry structure of Bernard et al. (2003) is linked to a multi-sector computable general equilibrium model. This linkage permits an analysis of plant-level behavior that encompasses the trade-induced changes in factor prices and consumption patterns. The methodology is applied in the examination of two counterfactual trade policy scenarios on the Chilean manufacturing sector. The results suggest that trade liberalization leads to a reallocation of output toward the most productive producers. This result is driven by two primary causes: (a) a reduction in the price of inputs that promotes the expansion of output by the most productive producers and (b) increased competition from overseas that drives the least productive producers out of the market.     

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.     

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.     

Does the use of imported intermediates increase productivity? Plant-level evidence

This paper examines whether importing intermediate goods improves plant performance. While addressing the issue of simultaneous productivity shocks and decisions to import intermediates, we estimate the impact foreign intermediates have on plants' productivity using plant-level Chilean manufacturing panel data. Across different estimators, we find evidence that becoming an importer of foreign intermediates improves productivity.     

Entry and exit of manufacturing plants over the business cycle

This paper analyzes the plant-level entry and exit over the business cycle. We document basic patterns of entry and exit of U.S. manufacturing plants between 1972 and 1997. We find that the entry rate is more cyclical than the exit rate. We also find that the differences in productivity and employment between booms and recessions are particularly larger for entering plants than for exiting plants. Our new finding suggests that the selection at the entry margin may be more important than the selection at the exit margin in understanding the plant-level dynamics over the business cycle.     

Dynamics of Intraindustry Trade and Labor-Market Adjustment

This paper investigates some dynamic aspects of the 'smooth adjustment hypothesis' that is commonly associated with intraindustry trade (IIT). The analysis is conducted on a panel of plant-level employment data and industry-level production and trade data for Ireland. Rates of intraindustry job turnover are used as a proxy for labor-market adjustment. Three findings stand out. First, a measure of marginal IIT is found to be more appropriate for the analysis of adjustment issues than the traditional static IIT index. Second, the effect of marginal IIT on labor-market adjustment is most significant in the short term, namely for indices calculated on one-year ntervals and lagged by one year. Third, the most significant determinants of the intraindustry job turnover rate are sector-level plant concentration ratios and trade openness.     

The impact of exchange rate volatility on plant-level investment: Evidence from Colombia

We estimate the impact of exchange rate volatility on firms' investment decisions in a developing country setting. Employing plant-level panel data from the Colombian Manufacturing Census, we estimate a dynamic investment equation using the system-GMM estimator developed by Arellano and Bover (1995) and Blundell and Bond (1998). We find a robust negative impact of exchange rate volatility, constructed either using a GARCH model or a simple standard deviation measure, on plant investment. Consistent with theory, we also document that the negative effect is mitigated for establishments with higher mark-up or exports, and exacerbated for lower mark-up plants with larger volume of imported intermediates.     

Evolving techniques in production function identification illustrated in the case of the US dairy

We estimate production technologies of major dairy producing regions in the U.S. The simultaneity and sample selection biases are carefully corrected following the recent development in the literature. The commonly applied control function approaches are found to be misleading in correcting for biases of coefficient estimates on flexible and quasi-fixed input variables. We show that the emerging dairy regions have relatively higher aggregate productivity than traditional regions. Dynamic decomposition results indicate that surviving farms play a more important role in regional productivity growth than entering and exiting farms. Farm- and regional-level driving forces of farm productivity are also examined.     

Industrial de-licensing, trade liberalization, and skill upgrading in India

We investigate the relationship between industrial de-licensing, trade liberalization, and skill upgrading during the 1980s and 1990s among manufacturing plants in India. We use a unique dataset on India's industrial licensing regime to test whether industrial de-licensing during the 1980s and 1990s played a role in skill upgrading, as measured by the employment and wagebill shares of white-collar workers. In addition, we assess the relative contribution of industrial de-licensing and trade liberalization to skill upgrading. We identify two main channels through which industrial de-licensing affects skill upgrading: capital- and output-skill complementarities. Using both difference-in-differences as well as regression discontinuity techniques, we find two important results. First, after controlling for the size-based exemption rule that determined whether or not a plant faced licensing restrictions, industrial de-licensing during the 1980s appears to have increased the relative demand for skilled workers via capital- and output-skill complementarities. Capital- and output-skill complementarities exist for plants in both licensed and de-licensed industries but were stronger in de-licensed industries during the 1980s, prior to India's massive trade liberalization reforms in 1991. Second, regardless of de-licensing, capital- and output-skill complementarities are generally weaker after trade was liberalized during the early 1990s. Together, capital- and output-skill complementarities contributed 75% (57%) and 31% (29%), respectively, of the growth in the employment and wagebill shares of white-collar workers in de-licensed (licensed) industries before trade was liberalized. After trade liberalization, these contributions were smaller. This suggests that trade liberalization may not have played a major role in raising the relative demand for skilled labor during the early 1990s.     

Internal trade,productivity and interconnected industries: A quantitative analysis

Does trade within a country affect welfare and productivity? What are the magnitude and consequences of costs to such trade? To answer these questions, we exploit unique Canadian data to measure internal trade costs in a variety of ways—they are large and vary across sectors and provinces. To quantify their consequences for welfare and productivity, we use a recent multi‐sector trade model featuring rich input–output relationships. We find interprovincial trade is an important contributor to Canada's GDP and welfare, though there are significant costs to such trade. Reducing interprovincial trade costs by 10% yields aggregate gains of 0.9%; eliminating our preferred estimates of costs, gains average between 3% and 7%—equivalent to real GDP gains between $50 billion and $130 billion. Finally, as policy reforms are often sector specific, we liberalize sectors one at a time and find gains are largest in highly interconnected industries.     

Size and Foreign Ownership Effects on Productivity and Efficiency: An Analysis of Turkish Motor Vehicle and Parts Plants

The levels and interactions of foreign connections and size may be important determinants of plant productivity and efficiency, particularly in a developing country such as Turkey. We explore the productive contributions of foreign ownership (FDI), emphasizing its linkages with plant size and input composition, for plants in the Turkish motor vehicle and parts industry. We evaluate the implications of FDI for overall productivity, input-specific contributions, and returns to scale, using OLS, stochastic production frontier, and quantile (size-specific) regression estimates of a translog production function model. We find significantly higher productivity of plants with foreign ownership, driven by a higher marginal product of labor, particularly for smaller plants. This effect augments the productive contributions of technical progress, capital intensity, and increasing returns to scale. FDI is also associated with a greater productive contribution of imported capital investment.     

Productivity Dynamics with Technology Choice: An Application to Automobile Assembly

During the 1980's, all Japanese automobile producers opened assembly plants in North America. Industry analysts and previous research claim that these transplants are more productive than incumbent plants and that they produce with a substantially different production process. I compare the production processes by estimating a model that allows for heterogeneity in technology and productivity, both of which are intrinsically unobservable. The model is estimated on a panel of assembly plants, controlling for capacity utilization and price effects.
The results indicate that the more recent technology uses capital more intensively and it has a higher elasticity of substitution between labour and capital. Hicks-neutral productivity growth is estimated to be lower, while capital-biased (labour-saving) productivity growth is higher for the new technology. Using the estimation results, I decompose industry-wide productivity growth and find plant-level changes in lean plants to be the most important contributor. Plant-level productivity growth is further decomposed to reveal the importance of capital-biased productivity growth, increases in the capital–labour ratio, and returns to scale.     

Estimating the impact of country‐level policy restrictions on services trade

Standard techniques used to estimate gravity equations, rely on bilateral variation to identify the effect of trade barriers on bilateral trade flows. In this paper, I develop a method that estimates the effects of country‐level variables on trade between countries in the presence of firm heterogeneity and country selection into trade, a natural extension of existing empirical models of international trade. I implement the method in services data, where available measures of trade policy provide information on the average level of regulations restricting entry into a country. The results suggest that policy barriers are important determinants of services trade flows.     

ENERGY INTENSITY IMPROVEMENTS IN STEEL MINIMILLS

Over the past 20 years, U.S. steel manufacturing has experienced an episode of creative destruction. Iron-ore based plants closed, and new electric arc furnace (EAF) plants–the "minimills"–opened. The steel industry is an energy intensive segment of manufacturing, and the changeover causes major change in energy use. The analysis here links a plant-level database from the Bureau of the Census with publicly available sources and obtains measures of the best practice energy use in minimills. The analysis examines how technical efficiency, vintage, and capacity utilization affect plant-level electricity use per ton of steel. This measure of electricity use gives a plant's "energy intensity." Plants in the sample keep operating even during deep recessions, suggesting that energy, e.g., BTU, taxes may fall short of the fullest potential for reducing energy use. During recession, plants actually may continue to operate at lower output rates and higher energy intensities rather than close down. Substantial potential exists for energy improvements of as much as 1 billion kWh per year. New facilities exhibit energy intensity improvement of 6.2 kWh/ton per year. This finding is consistent with engineering estimates. Realizing this potential among all plants would require policies that assist capital turnover.     

Productivity growth patterns in US dairy products manufacturing plants

We analyse the productivity growth patterns in the US dairy products industry using the Census Bureau's plant-level data set. We decompose Total Factor Productivity (TFP) growth into the scale and technical change components and analyse variability of plants’ productivity by constructing transition matrices. We observe a cross-sectional dispersion in plant-level productivity growth in the industry. Even though the industry aggregate shows a small TFP growth rate ?0.3%, quartile rank analysis shows that while the lowest productivity quartile plants average 1.9% loss in productivity, the highest productivity quartile plants average 1.1% growth annually. Our results show considerable movements of plants in their productivity rank categories overall and across age groups, and we find that the scale effect contribution to TFP growth accounts for about 90% of TFP growth on average in the industry. These plants extract scale efficiencies over technological progress to fuel TFP growth. The youngest plants start with the lowest productivity growth at the initial time period, but they catch up older plants productivity, which present the highest average growth rate through years. This may indicate a ‘learning-by-doing’ process for the industry.     

Product quality and firm heterogeneity in international trade

This paper quantifies the separate contributions of product quality and technical efficiency in explaining variation in export outcomes across US manufacturing plants. Unlike previous studies that rely on unit values, I estimate idiosyncratic demand from price and quantity information. I find substantial across‐plant heterogeneity in demand, and consistent with the quality interpretation, demand is positively correlated with advertising expenditures, wage rates and material costs. I use this variation to explain across‐plant heterogeneity in export outcomes. The results show that, in addition to productivity, idiosyncratic demand is an important determinant of selection into exporting and the levels of foreign sales.     

Multi‐product exporters,variable markups and exchange rate fluctuations

In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. We estimate markups at the market–product–plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that this increase is greater for products with higher productivity. Thus, we provide direct evidence for the theoretical mechanism of variable markup response behind incomplete and heterogeneous exchange rate pass‐through on producer prices. Our empirical methodology allows us to decompose the producer price response to exchange rate shocks into a markup and a marginal cost component using our markup estimates. Using these estimates, we establish that marginal cost at the product–plant level increases more in response to real exchange rate depreciation if the plant has higher share of imported inputs.