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Closing the Technology Gap: Does Trade Liberalization Really Help?

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Dani Rodrik

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Abstract

A common theme in discussions of trade reform is the possibility of improved technical efficiency following trade liberalization, This paper presents a conceptual analysis of the likely linkages between trade regimes and technical efficiency. Three sets of arguments, having to do with X-inefficiency, macroeconomic instability, and increasing returns to scale, are reviewed and found misleading or incomplete. A simple model of technological catch-up by a domestic firm shows the opposite of the usual argument: the larger market share provided by protection to the firm increases its incentives to invest in technological effort. When modified to include oligopolistic considerations at home, the model suggests that the incentives could go either way, depending on the mode of strategic conduct. The presence of economies of scale provides perhaps the strongest reason for productivity improvements, but here the argument relies on frictionless entry into and exit from industries. The paper concludes that the relationship between trade policy and technical efficiency is fundamentally ambiguous.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2654.

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Date of creation: Jul 1988
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Handle: RePEc:nbr:nberwo:2654

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  1. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February. [Downloadable!] (restricted)
  2. Jeffrey D. Sachs, 1987. "Trade and Exchange Rate Policies in Growth-Oriented Adjustment Programs," NBER Working Papers 2226, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Nishimizu, Mieko & Robinson, Sherman, 1984. "Trade policies and productivity change in semi-industrialized countries," Journal of Development Economics, Elsevier, vol. 16(1-2), pages 177-206. [Downloadable!] (restricted)
  4. de Melo, Jaime & Urata, Shujiro, 1986. "The influence of increased foreign competition on industrial concentration and profitability," International Journal of Industrial Organization, Elsevier, vol. 4(3), pages 287-304, September. [Downloadable!] (restricted)
  5. Condon, Timothy & de Melo, Jaime, 1990. "Industrial organization implications of QR trade regimes : evidence and welfare costs," Policy Research Working Paper Series 487, The World Bank. [Downloadable!]
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  6. Krueger, Anne O & Tuncer, Baran, 1982. "An Empirical Test of the Infant Industry Argument," American Economic Review, American Economic Association, vol. 72(5), pages 1142-52, December. [Downloadable!] (restricted)
  7. Teitel, Simon & Colman Sercovich, Francisco, 1984. "Latin America," World Development, Elsevier, vol. 12(5-6), pages 645-660. [Downloadable!] (restricted)
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  1. Foroutan, Faezeh, 1991. "Foreign trade and its relation to competition and productivity in Turkish industry," Policy Research Working Paper Series 604, The World Bank. [Downloadable!]
  2. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Dutz, Mark A., 1991. "Firm output adjustment to trade liberalization : theory with application to the Moroccan experience," Policy Research Working Paper Series 602, The World Bank. [Downloadable!]
  4. Harrison, Ann E., 1990. "Productivity, imperfect competition, and trade liberalization in Cote d'Ivoire," Policy Research Working Paper Series 451, The World Bank. [Downloadable!]
  5. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. 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. [Downloadable!] (restricted)
  7. Mihir Pandey, 2004. "Impact of trade liberalisation in manufacturing industry in India in the 1980s and 1990s," Indian Council for Research on International Economic Relations, New Delhi Working Papers 140, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  8. Yener Kandogan, 2003. "Technological Progress Through Trade Liberalization in Transition Countries," William Davidson Institute Working Papers Series 2003-567, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  9. Christer Ljungwall, 2006. "Export-led Growth: Application to China's Provinces, 1978--2001," Journal of Chinese Economic and Business Studies, Taylor and Francis Journals, vol. 4(2), pages 109-126, July. [Downloadable!] (restricted)
  10. Rana Hasan, 2000. "The Impact of Imported and Domestic Technologies on Productivity: Evidence from Indian Manufacturing Firms," Economics Study Area Working Papers 06, East-West Center, Economics Study Area. [Downloadable!]
  11. Erkan Erdem & James Tybout, 2003. "Trade Policy and Industrial Sector Responses: Using Evolutionary Models to Interpret the Evidence," NBER Working Papers 9947, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Pavcnik, Nina & Blom, Andreas & Goldberg, Pinelopi & Schady, Norbert, 2003. "Trade liberalization and labor market adjustment in Brazil," Policy Research Working Paper Series 2982, The World Bank. [Downloadable!]
  13. Attanasio, Orazio & Goldberg, Pinelopi & Pavcnik, Nina, 2003. "Trade Reforms and Wage Inequality in Colombia," CEPR Discussion Papers 4023, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. B. Bosworth & S. M. Collins & Y. Chen, . "Accounting for Difference in Economic Growth," Discussion Papers 115, Brookings Institution International Economics. [Downloadable!]
  15. Diego Méndez-Carbajo & Dimitrios Thomakos, 2003. "Economic integration, market discipline and productivity growth in Spain," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 12(4), pages 359-375, December. [Downloadable!] (restricted)
  16. Tybout, James R., 1991. "Researching the trade - productivity link : new directions," Policy Research Working Paper Series 638, The World Bank. [Downloadable!]
  17. Ibrahim A. Elbadawi & Raimundo Soto, . "Real Exchange Rates and Macroeconomic Adjustment in Sub-Sahara Africa and Other Developing Countries," ILADES-Georgetown University Working Papers inv093, Ilades-Georgetown University, School of Economics and Bussines. [Downloadable!]
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  18. Haider A. Khan, 2002. "Innovation and Growth: A Schumpeterian Model of Innovation," CIRJE F-Series CIRJE-F-150, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
  19. Kishor Sharma, 2000. "Liberalization and Structural Change: Evidence from Nepalese Manufacturing," Working Papers 812, Economic Growth Center, Yale University. [Downloadable!]
  20. Goldberg, Pinelopi Koujianou & Pavcnik, Nina, 2003. "Trade, Wages and the Political Economy of Trade Protection: Evidence from the Colombian Trade Reforms," CEPR Discussion Papers 3877, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  21. Sanjaya Lall, . "Selective Industrial and Trade Policies in Developing Countries: Theoretical and Empirical Issues," QEH Working Papers qehwps48, Queen Elizabeth House, University of Oxford. [Downloadable!]
  22. Ruben Tansini & Patricia Triunfo, 1998. "Eficiencia técnica y apertura comercial en cuatro ramas industriales," Documentos de Trabajo (working papers) 0998, Department of Economics - dECON. [Downloadable!]
  23. Rajat Acharyya & Swapnendu Banerjee, 2005. "On Tariff, Quality Choice and Innovation in a Vertically Differentiated Monopoly with Discrete Preferences," Departmental Working Papers wp0504, National University of Singapore, Department of Economics. [Downloadable!]
  24. Greetje Everaert, 2003. "Technology Adoption under Price Undertakings," LICOS Discussion Papers 13703, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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