We examine the effects of trade policy changes on the evolution of plant productivity. Plant level productivities are estimated for the 1983-96 period following the procedure of Olley and Pakes (1996). Industry averages indicate that productivity gains are largest in import competing industries with highest gains reaching to 8% per year during periods of rapid decline in protection rates. A decomposition of industry level productivity gains also suggests important differences across sectors by trade orientation. Though reallocation of market shares to more productive plants are important in both export oriented, and import competing sectors, within plant productivity improvements are significant only in export-oriented sectors. We also investigate the effects of changes in protection rates on plant level productivities using regressions that control for endogeneity of protection rates (tariff and non-tariff). We find that productivity improvements resulting from declining protection levels are statistically significant and economically important, especially in import competing sectors. This analysis also suggests that there is a huge degree of heterogeneity, measured by plant size, in response to changes in protection rates.
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Length: 36 pages Date of creation: Jan 2007 Date of revision: Handle: RePEc:koc:wpaper:0704
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Find related papers by JEL classification: F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
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