Efficiency Gains from Trade Reform: Foreign Technology or Import Competition? Evidence from South Africa’s Manufacturing Sector
AbstractThe empirical trade literature examining the effect of tariff reductions on productivity commonly proxies the former with Nominal Tariff Rates (NTR) and estimates the latter as the production function residual. In the context of the South African trade reform experience we examine the different channels by which tariff cuts affect productivity growth. Using industry level data for the manufacturing sector and covering the reform period from 1994 to 2004, we disentangle the differential effect of increased foreign competition, proxied by reductions in NTR, and that of the imported technology, proxied by the reductions in Input Tariff Rates (ITR), on productivity growth. Our measure of efficiency growth controls for the effect of tariff reductions on markups. The results suggest that the efficiency difference between foreign and domestic inputs have the major effect on productivity gains. Declines in ITR significantly raise productivity growth compared to an insignificant effect for NTR. Additionally, we find that higher protection rates are associated with higher markups, albeit this finding is not robust across all specifications.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2007/18.
Date of creation: 2007
Date of revision:
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Productivity; Trade Reform; Tariffs; Manufacturing; South Africa;
Find related papers by JEL classification:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
This paper has been announced in the following NEP Reports:
- NEP-AFR-2007-10-27 (Africa)
- NEP-ALL-2007-10-27 (All new papers)
- NEP-DEV-2007-10-27 (Development)
- NEP-EFF-2007-10-27 (Efficiency & Productivity)
- NEP-INT-2007-10-27 (International Trade)
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