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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. Chand, Satish & Sne, Kunal, 2002. "Trade Liberalization and Productivity Growth: Evidence from Indian Manufacturing," Review of Development Economics, Wiley Blackwell, vol. 6(1), pages 120-32, February.
  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. Epifani, Paolo, 2003. "Trade liberalization, firm performance, and labor market outcomes in the developing world : what can we learn from micro-level data?," Policy Research Working Paper Series 3063, The World Bank.
  4. Muendler, Marc-Andreas, 2004. "Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998," University of California at San Diego, Economics Working Paper Series qt6m96c2r7, Department of Economics, UC San Diego.
  5. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
  6. 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.
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Citations

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Cited by:
  1. Rafaelita M. ALDABA, 2012. "Trade Reforms, Competition, and Innovation in the Philippines," Working Papers DP-2012-05, Economic Research Institute for ASEAN and East Asia (ERIA).
  2. Aldaba, Rafaelita M., 2013. "Impact of Trade Liberalization on Wage Skill Premium in Philippine Manufacturing," Discussion Papers DP 2013-25, Philippine Institute for Development Studies.
  3. Aldaba, Rafaelita M., 2012. "Surviving Trade Liberalization in Philippine Manufacturing," Discussion Papers DP 2012-10, Philippine Institute for Development Studies.
  4. 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.

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