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Trade liberalization, competition and productivity growth – new evidence from Pakistani manufacturing firms

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  • Zara Liaqat

Abstract

It is generally believed that a rise in foreign competition makes the industrial sector more efficient. By using a novel firm-level data set from a variety of industries in Pakistan, this paper revisits productivity-liberalization link, and investigates the effect of trade liberalization on competition and firm productivity. We find that productivity gains from reducing overall tariff rates are not obvious from a simple regression of total factor productivity on tariff rates; if there are any gains from reducing tariffs on intermediate goods, they are greatly counterbalanced by reduction in tariffs on final goods. There is evidence of an increase in competition following trade liberalization. In a majority of industries, there is reduction in returns to scale, indicating the existence of inflexible capacity constraints in these industries. Moreover, it offers evidence for the perception that gains from trade liberalization in the form of improvement in firm productivity have been greatly exaggerated.

Suggested Citation

  • Zara Liaqat, 2013. "Trade liberalization, competition and productivity growth – new evidence from Pakistani manufacturing firms," Journal of Global Economy, Research Centre for Social Sciences,Mumbai, India, vol. 9(3), pages 219-246, September.
    • Handle: RePEc:jge:journl:935
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    Cited by:

    1. Zara Liaqat, 2018. "Differing Impact of Liberalisation: The Case of Vertically Integrated Clothing Firms," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(3), pages 283-306.
    2. Jabbar Ul-Haq & Hubert Visas & Seyedrohollah Ahmadi & Ahmed Raza Cheema, 2020. "Female Earnings in the Apparel Industry Post-MFA: Evidence From Pakistan," SAGE Open, , vol. 10(2), pages 21582440209, May.

    More about this item

    Keywords

    Trade liberalization; Productivity; Tariffs; Markups; Pakistan;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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