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Gradual Trade Liberalization and Firm Performance in Ethiopia

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  • Arne Bigsten
  • Mulu Gebreeyesus
  • Mans Soderbom

Abstract

We use firm-level data for the Ethiopian manufacturing sector matched with commodity- level data on tariffs to examine the effect of trade liberalization on firm performance during the 1997-2005 period. We find relatively large positive effects of tariff reductions on total factor productivity, a result that is robust to treating tariffs as endogenous, and to various generalizations of the baseline model. This affects is primarily driven by mechanisms operating at high tariff level, suggesting that excessive tariff levels may be particularly distortionary. We find some evidence that the reduction of tariffs has resulted in smaller and more capital-intensive domestic firms. We note that these effects are consistent with the hypothesis that the trade liberalization has increased competition in the domestic market. We find no significant effect of the trade liberalization on entry or exit rates.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2009-21.

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Date of creation: 2009
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Handle: RePEc:csa:wpaper:2009-21

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Cited by:
  1. Alem, Yonas & Söderbom, Måns, 2012. "Household-Level Consumption in Urban Ethiopia: The Effects of a Large Food Price Shock," World Development, Elsevier, vol. 40(1), pages 146-162.
  2. Yonas Alem and Mans Soderbom, 2010. "Household-Level Consumption in Urban Ethiopia: The Impact of Food Price Inflation and Idiosyncratic Shocks," Economics Series Working Papers CSAE WPS/2010-24, University of Oxford, Department of Economics.
  3. Haile, Getinet Astatike & Srour, Ilina & Vivarelli, Marco, 2013. "The Impact of Globalization and Technology Transfer on Manufacturing Employment and Skills in Ethiopia," IZA Discussion Papers 7820, Institute for the Study of Labor (IZA).

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