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Does Trade Protection Improve Firm Productivity? Evidence from Philippine Micro Data

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Author Info

  • Aldaba, Rafaelita M.

Abstract

The recent trade and productivity literature shows that trade liberalization can lead to productivity gains through increased competition and exit of inefficient firms and reallocation of market shares in favor of more efficient firms. In this paper, an attempt is made to examine the impact of trade liberalization on firm productivity in the Philippines. The country presents an interesting case due to its adoption of selective protection amidst an incomplete trade liberalization process. Based on an unbalanced firm-level panel dataset covering an eight-year period from 1996 to 2006, the results provide some evidence in support of the hypothesis that trade liberalization leads to productivity gains and conversely, protection leads to productivity losses. This is confirmed by the negative and significant coefficient on EPR for the purely importable sector. The results tend to indicate that the selective protection policy undermined the process of output restructuring and reshuffling of resources from less productive to more productive firms as protection of selected industries allowed the survival of inefficient firms.

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Bibliographic Info

Paper provided by Philippine Institute for Development Studies in its series Discussion Papers with number DP 2010-32.

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Length: 60
Date of creation: 2010
Date of revision:
Handle: RePEc:phd:dpaper:dp_2010-32

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Related research

Keywords: trade liberalization; total factor productivity; Philippines; selective protection; Philippine manufacturing industry;

References

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  1. Pravin Krishna & Devashish Mitra, . "Trade Liberalization, Market Discipline and Productivity Growth: New Evidence From India," Working Papers 96-8, Brown University, Department of Economics.
  2. Mary Hallward-Driemeier & Giuseppe Iarossi & Kenneth L. Sokoloff, 2002. "Exports and Manufacturing Productivity in East Asia: A Comparative Analysis with Firm-Level Data," NBER Working Papers 8894, National Bureau of Economic Research, Inc.
  3. Satish Chand & Kunal Sen, 1996. "Trade Liberalization and Productivity Growth: Evidence from Indian Manufacturing," Trade and Development 96/11, Australian National University, Department of Economics.
  4. 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.
  5. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  6. Marc-Andreas Muendler, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," CESifo Working Paper Series 1148, CESifo Group Munich.
  7. 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.
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Citations

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Cited by:
  1. Aldaba, Rafaelita M., 2012. "Surviving Trade Liberalization in Philippine Manufacturing," Discussion Papers DP 2012-10, Philippine Institute for Development Studies.
  2. Majuca, Ruperto P., 2011. "An Estimated (Closed Economy) Dynamic Stochastic General Equilibrium Model for the Philippines: Are There Credibility Gains from Committing to an Inflation Targeting Rule?," Discussion Papers DP 2011-04, Philippine Institute for Development Studies.
  3. Aldaba, Rafaelita M., 2012. "Trade Reforms, Competition, and Innovation in the Philippines," Discussion Papers DP 2012-06, Philippine Institute for Development Studies.

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