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Trade Liberalization and Firm Productivity: The Case of India

  • Petia Topalova

    (IMF)

  • Amit Khandelwal

    (Columbia University, BREAD, and NBER)

This paper exploits India's rapid, comprehensive, and externally imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we find no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 93 (2011)
Issue (Month): 3 (August)
Pages: 995-1009

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Handle: RePEc:tpr:restat:v:93:y:2011:i:3:p:995-1009
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