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 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.     

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.     

Technology and the dynamics of comparative advantage

This paper explores how trade affects innovation in a two‐country, two‐good, two‐factor Heckscher–Ohlin model with heterogeneous firms. Trade openness induces an increase in process innovation in both industries. The increase is stronger in the comparative advantage industry. Trade openness boosts prospective entrants' profits in that industry, which leads to further increases in product innovation. Trade liberalization generates a different relative impact on innovation across industries, depending on trade costs. When they are high (low), it increases process innovation relatively more in the comparative advantage (disadvantage) industry, leading to TFP divergence (convergence) across industries.     

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.     

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.     

Heterogeneous firms,trade liberalization and agglomeration

Abstract In this study, we develop an economic model to examine agglomeration of heterogeneous firms following trade liberalization. In a closed economy, we show that high‐productivity firms are more likely to agglomerate because they benefit more from agglomeration than their low‐productivity counterparts. However, trade liberalization, especially with a high‐productivity partner, favours partial agglomeration; that is, low‐productivity firms relocate away from the region where high‐productivity firms agglomerate. Consequently, the welfare gap between the domestic regions of an economy narrows following trade liberalization. The latter result suggests that trade liberalization promotes regional economic development.     

Credit Constraints,Technology Choice and Exports: A Firm‐level Study for Latin American Countries

In this paper, constraints on technology choice and credit access are introduced into a firm‐level trade model in a dynamic setting in order to explain factors that limit benefits to a firm from trade liberalization. Theoretical analysis shows that firms face credit constraints depending on their initial productivity and the cost of credit. As a result, credit‐constrained firms may not be able to cross the minimum productivity threshold needed to enter and compete in a foreign market. Empirical analysis using firm‐level panel data for six Latin American countries confirms that financial constraints negatively influence firms' export and investment decisions.     

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。     

The Impact of Trade Liberalization on Enterprises in Small Backward Economies: the Case of Chad and Gabon

This paper examines the impact of trade and fiscal reforms and of the 1994 devaluation of the CFA franc on enterprise development in Chad and Gabon. These reforms provide a natural experiment to assess the impact of trade liberalization in countries with a small and backward manufacturing sector. The empirical analysis is based on a new panel data base covering virtually the whole population of manufacturing firms in Chad and Gabon, and containing data spanning from the year before to two years after the reforms. The paper finds that although firms’ response to changing incentives was non‐negligible, with a shift of output from nontradable to tradable and an increase in productivity, the reform process was unable to generate a virtuous and self‐sustained circle, where export expansion brings a generalized productivity increase which in turn feeds on further export growth.     

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.     

Intra‐industry Trade Liberalization: Why Skilled Workers are More Likely to Support Free Trade

This paper presents a theoretical model and empirical analysis that connects the prevalence of intra‐industry trade with increased wage inequality from trade liberalization in both skilled and unskilled labor abundant countries. The Stolper–Samuelson effect is incorporated into an intra‐industry trade liberalization (intra‐ITL) hypothesis where skilled labor opposes protectionism in all countries engaged in intra‐industry trade because skilled workers gain at the expense of unskilled workers from multilateral trade liberalization within the skill‐intensive sector. We examine empirical evidence on whether skilled individuals are more supportive of trade liberalization than unskilled individuals across 31 countries with different levels of intra‐industry trade and skill endowments. We find that the extent to which countries engage in intra‐industry trade in high‐tech commodities is strongly linked with the intensity of opposition to protection by skilled labor. Regression results strongly support our hypothesis that skilled workers, almost everywhere, are more likely to support free trade.     

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.     

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.     

Estimating productivity and returns to scale in the US textile industry

In light of the textile industry's growing foreign competition, trade deficit and job loss, we estimate its productivity and efficiency for the period 1975–93 utilizing a variable elasticity of substitution production function. The results indicate that, despite job losses, the industry adjusted by increasing labor productivity and maintaining fairly stable profits. This performance does not warrant protectionist policies. However, with an elasticity of factor substitution less than one and decreasing, the impact of factor price increases could result in higher apparel prices and preference for cheaper imports. Furthermore, with an elasticity of capital output rapidly decreasing, significant technological improvements will be required to improve competitiveness since textile production is capital intensive. Recently revised rules on trade liberalization could increase competition in the industry. First version received: October 1999/Final version received: August 2000     

Openness, managerial incentives, and heterogeneous firms

This paper examines the effects of trade openness on managerial incentives and firm-level productivity by incorporating the principal-agent mechanism into the heterogeneous firm trade framework inter alia Melitz (Econometrica 71:1695?C1725, 2003). We show that opening up to trade generally leads to a steeper optimal managerial incentive scheme (and hence, higher firm productivity) via a new mechanism by which selection of heterogeneous firms into the export market plays a key role. This is because trade openness unambiguously increases the variation of firm profits by reallocating profits towards ex post low-cost exporters, leading to a higher stake of the market game faced by the principals. Interestingly, it is further shown that, whilst falling variable trade costs unambiguously increase managerial incentives, a reduction in fixed trade costs could possibly lead to weaker incentives and thus generate productivity losses due to an adverse inter-firm reallocation effect. Hence, the model establishes a causal link between the Melitz-type reallocation effect and the within-firm productivity changes, both of which have been identified as important sources of aggregate productivity gains from trade by recent empirical studies.     

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.     

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, Human Capital, and Technology Spillovers: an Industry-level Analysis

This paper studies whether trade promotes North–South and South–South technology spillovers at the industry level, and how the absorptive capacity of the South affects the impact of the technology spillovers. Using data from 16 manufacturing industries in 25 developing countries from 1976 to 1998, the paper shows: (i) North–South trade‐related R&D has a substantial impact on total factor productivity in the South; (ii) South–South trade‐related R&D also promotes technology spillovers but with a smaller magnitude; and (iii) human capital is very important in facilitating North–South and South–South technology spillovers: an increase in human capital could lead to over three times the size of technology spillovers from an increase in trade‐related foreign R&D.     

Technology Transfer and Merger Activities with Trade and Tariffs

In order to better understand the effects of globalization on merger incentives this paper considers a set of commonly observed mergers whereby a restructured target (with improved managerial or technical capability) continues to supply the market. In contrast to the market‐concentrating merger literature it finds that trade barriers tend to encourage mergers, including potentially welfare‐reducing, tariff‐jumping mergers. Multilateral trade liberalization, however, encourages welfare‐improving mergers. Hence, and despite the skepticism of regulatory authorities towards the existence of cost synergies as a consequence of mergers, this paper suggests that in order to assess the impact of trade liberalization under the WTO on merger incentives, and consequently on prices, quantities, and welfare, accurate information on ex ante cost differences and the transferability of managerial and technical techniques is required.