Trade liberalization and productivity growth in Australian manufacturing industries

Although there has been a revival of interest in the trade-growth nexus, the impact of trade liberalization on productivity gains remains empirical, given the ambiguity in the literature on this issue. This paper examines the case for Australia using annual data of eight two-digit manufacturing industries from 1968–69 to 1994–95. Unlike earlier studies, total factor productivity growth is first decomposed into technological progress and gains in technical efficiency, and the effect of trade liberalization is then investigated separately on TFP growth, as well as on each of the components of TFP growth. The empirical finding that trade liberalization has a positive and significant effect on technological progress, but no significant effect on gains in technical efficiency, adds yet another dimension to the evaluation of trade liberalization policies.