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Trade Liberalization and Firm Productivity

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  • Petia Topalova

Abstract

Using a panel of firm-level data, this paper examines the effects of India''s trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics. The rapid and comprehensive tariff reductions-part of an IMF-supported adjustment program with India in 1991-allow us to establish a causal link between variations in inter-industry and intertemporal tariffs and consistently estimated firm productivity. Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies. Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/28.

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Length: 38
Date of creation: 01 Feb 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/28

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Related research

Keywords: Trade policy; trade liberalization; trade protection; tariff reductions; trade reforms; tariff barriers; impact of trade; tariff changes; trade policies; non-tariff barriers; domestic firms; domestic producers; political economy; quantitative restrictions; foreign trade; balance of payments; average tariffs; reduction in tariffs; impact of trade liberalization; trade regime; wholesale price; measure of trade; external tariffs; tariff reform; balance sheets; effects of trade liberalization; export restrictions; trade liberalization increases; trade opening; vulnerability to shocks; tariff levels; trading partners; tariff reduction; balance of payments crisis; gross capital formation; per capita income; domestic industries; intermediate inputs; pro-competitive effects; wholesale price index; international trade; trade reform; investor confidence; imperfect competition; efficient firms; export production; import substitution; import protection; imported inputs; average tariff; competitive effects; restrictions on exports; import tariffs; oil prices; goods for export; interest groups; import penetration; export control; trade classification; metal products; transport equipment; competitive effects of trade; imported goods; trade theories; trade volumes; process of liberalization;

This paper has been announced in the following NEP Reports:

References

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  1. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  4. Paolo Epifani, 2002. "Trade Liberalization, Firm Performance and Labour Market Outcomes in the Developing World: What Can We Learn from Micro-LevelData?," Development Working Papers 172, Centro Studi Luca d\'Agliano, University of Milano.
  5. Timothy Besley & Robin Burgess, 2002. "Can labour regulation hinder economic performance? Evidence from India," LSE Research Online Documents on Economics 3779, London School of Economics and Political Science, LSE Library.
  6. Pravin Krishna & Devashish Mitra, . "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
  7. Pinelopi K. Goldberg & Nina Pavcnik, 2001. "Trade Protection and Wages: Evidence from the Colombian Trade Reforms," NBER Working Papers 8575, National Bureau of Economic Research, Inc.
  8. F. Zilibotti & P. Aghion & R. Burgess, 2004. "The Unequal Effects of Trade Liberalization: Theory and Evidence from India," 2004 Meeting Papers 40, Society for Economic Dynamics.
  9. Hasan, Rana, 2002. "The impact of imported and domestic technologies on the productivity of firms: panel data evidence from Indian manufacturing firms," Journal of Development Economics, Elsevier, vol. 69(1), pages 23-49, October.
  10. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  11. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  12. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
  13. Rana Hasan & Devashish Mitra & K.V. Ramaswamy, 2003. "Trade Reforms, Labor Regulations and Labor-Demand Elasticities: Empirical Evidence from India," NBER Working Papers 9879, National Bureau of Economic Research, Inc.
  14. Aw, Bee Yan & Chen, Xiaomin & Roberts, Mark J., 2001. "Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing," Journal of Development Economics, Elsevier, vol. 66(1), pages 51-86, October.
  15. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
  16. Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991. "The effects of trade reforms on scale and technical efficiency : New evidence from Chile," Journal of International Economics, Elsevier, vol. 31(3-4), pages 231-250, November.
  17. Epifani Paolo, 2003. "Trade liberalization, Firm Performances and Labor Market Outcomes in the Developing World, what Can We Learn From Micro-Level Data?," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 455-486.
  18. repec:rus:hseeco:122439 is not listed on IDEAS
  19. James R. Tybout, 2001. "Plant- and Firm-Level Evidence on "New" Trade Theories," NBER Working Papers 8418, National Bureau of Economic Research, Inc.
  20. Bulent Unel, 2003. "Productivity Trends in India's Manufacturing Sectors in the Last Two Decades," IMF Working Papers 03/22, International Monetary Fund.
  21. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
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