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The Impact of Trade Liberalization on Productivity Within and Across Industries: Theory and Evidence

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  • Josh Ederington
  • Phillip McCalman

Abstract

Numerous studies have investigated the link between trade policy and firm productivity. Despite justifying firm level analysis on the basis of considerable heterogeneity between firms within narrowly defined industries, these studies typically constrain all firms to have the same expected response to changes in trade policy. In this paper we develop a theoretical model that accounts for the existence of firm level heterogeneity within industries and predicts that the equilibrium response to changes in trade policy will also be heterogeneous in terms of both sign and size. The variation in firm level reaction is shown to be determined by both firm and industry characteristics and therefore the equilibrium response to trade policy is predicted to vary not only within industries but also across industries. These results allow us to use both sources of variation in the data. We examine these predictions on a firm level data set for the Colombian manufacturing sector in the 1980’s and find strong support for them.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2007/2407impactedringtonmccalman.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 24-07.

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Length: 30 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mos:moswps:2007-24

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Keywords: tariffs; technology diffusion; productivity.;

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Cited by:
  1. Ederington, Josh & McCalman, Phillip, 2009. "Infant Industry Protection and Industrial Dynamics," MPRA Paper 22361, University Library of Munich, Germany.
  2. Long, Ngo Van & Raff, Horst & Stähler, Frank, 2011. "Innovation and trade with heterogeneous firms," Journal of International Economics, Elsevier, vol. 84(2), pages 149-159, July.
  3. Konings, Jozef & Vandenbussche, Hylke, 2009. "Antidumping Protection hurts Exporters: Firm-level evidence from France," CEPR Discussion Papers 7330, C.E.P.R. Discussion Papers.
  4. Navas, Antonio, 2010. "La Apertura al Comercio Exterior y sus Efectos sobre la Productividad en Presencia de Diferencias Intersectoriales," Working Papers in Economic Theory 2010/04, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
  5. Omar Licandro & Antonio Navas-Ruiz, 2008. "Trade Liberalization, Competition and Growth," Working Papers 2008-03, FEDEA.
  6. Ngo Van Long & Horst Raff & Frank Staehler, 2007. "The Effects of Trade Liberalization on Productivity and Welfare: The Role of Firm Heterogeneity, R&D and Market Structure," Working Papers 0710, University of Otago, Department of Economics, revised Jun 2007.

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