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Does freer trade really lead to productivity growth? Evidence from Sub-Saharan Africa

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  • Coxhead, Ian A.
  • Foltz, Jeremy D.
  • Mogues, Tewodaj

Abstract

Manufacturing is intensive in the use of reproducible factors and exhibits greater technological dynamism than primary production. As such its growth is central to long-run development in low-income countries. Sub-Saharan African countries are latecomers to industrialization, and barriers to manufacturing growth, including those that limit trade, have been slow to come down. What factors contribute most to increases in output and productivity growth in their manufacturing sectors? Recent trade-IO theory suggests that trade liberalization should raise average total factor productivity (TFP) among manufacturing firms (Melitz 2003), but these predictions are conditional on maintained assumptions about the nature of industries, factor markets and trade patterns that may be less suitable in a developing-country setting. Manufacturing industries and firms are heterogeneous, so this analysis demands disaggregated data. We use firm-level data from the World Bank’s Regional Program on Enterprise Development (RPED) covering Ghana, Kenya, Nigeria, and Tanzania, 1991-2003. Among other things, the data distinguish exports by destination (Africa and the rest of the world), which is important due to the spread of intra-Africa regional trade agreements (RTAs). Econometric results confirm well-known relationships, for example a positive association between export intensity and TFP. However, we also find the destination of exports to be important. Export firms are more productive but have experienced declining TFP growth, and this has occurred at different rates depending on the country and the export market addressed. We show that these differentials are consistent with predictions from a modified statement of the Melitz model. The TFP results add a new dimension to controversies over the development implications of trade liberalization and the promotion of intra-Africa RTAs.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124958.

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Date of creation: 2012
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Handle: RePEc:ags:aaea12:124958

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Keywords: International Development; Research and Development/Tech Change/Emerging Technologies; F14; O14; O33;

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  1. Catherine A. Pattillo & Taye Mengistae, 2002. "Export Orientation and Productivity in Sub-Saharan Africa," IMF Working Papers 02/89, International Monetary Fund.
  2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  3. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafcharnps & Bernard Gauthier & Jan Willern Gunning & Jean Habarurema & Anders Isaksson & Abena Oduro & Remco Oostendorp & Cathy Pattillo & Mans So, 1999. "Exports of African manufactures: macro policy and firm behaviour," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(1), pages 53-71.
  4. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fachamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Mans Soderbom & Francis Teal & Albert Zeuf, 2004. "Do African manufacturing firms learn from exporting?," Development and Comp Systems 0409071, EconWPA.
  5. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
  6. J Bradford Jensen & Andrew B Bernard, 2001. "Why Some Firms Export," Working Papers 01-05, Center for Economic Studies, U.S. Census Bureau.
  7. M�ns S–derbom & Francis Teal, 2003. "Are Manufacturing Exports the Key to Economic Success in Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 1-29, March.
  8. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  9. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
  10. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
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