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Does freer trade really lead to productivity growth? Evidence from Sub-Saharan Africa

  • Coxhead, Ian A.
  • Foltz, Jeremy D.
  • Mogues, Tewodaj

Manufacturing is intensive in the use of reproducible factors and exhibits greater technological dynamism than primary production. As such its growth is central to long-run development in low-income countries. Sub-Saharan African countries are latecomers to industrialization, and barriers to manufacturing growth, including those that limit trade, have been slow to come down. What factors contribute most to increases in output and productivity growth in their manufacturing sectors? Recent trade-IO theory suggests that trade liberalization should raise average total factor productivity (TFP) among manufacturing firms (Melitz 2003), but these predictions are conditional on maintained assumptions about the nature of industries, factor markets and trade patterns that may be less suitable in a developing-country setting. Manufacturing industries and firms are heterogeneous, so this analysis demands disaggregated data. We use firm-level data from the World Bank’s Regional Program on Enterprise Development (RPED) covering Ghana, Kenya, Nigeria, and Tanzania, 1991-2003. Among other things, the data distinguish exports by destination (Africa and the rest of the world), which is important due to the spread of intra-Africa regional trade agreements (RTAs). Econometric results confirm well-known relationships, for example a positive association between export intensity and TFP. However, we also find the destination of exports to be important. Export firms are more productive but have experienced declining TFP growth, and this has occurred at different rates depending on the country and the export market addressed. We show that these differentials are consistent with predictions from a modified statement of the Melitz model. The TFP results add a new dimension to controversies over the development implications of trade liberalization and the promotion of intra-Africa RTAs.

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File URL: http://purl.umn.edu/124958
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Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124958.

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Date of creation: 2012
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Handle: RePEc:ags:aaea12:124958
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  1. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafcharnps & Bernard Gauthier & Jan Willern Gunning & Jean Habarurema & Anders Isaksson & Abena Oduro & Remco Oostendorp & Cathy Pattillo & Mans So, 1999. "Exports of African manufactures: macro policy and firm behaviour," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(1), pages 53-71.
  2. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  3. Andrew B. Bernard & J. Bradford Jensen, 2001. "Why Some Firms Export," NBER Working Papers 8349, National Bureau of Economic Research, Inc.
  4. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc.
  5. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  6. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & M�ns Soderbom & Francis Teal & Albert Zeu, 2004. "Do African Manufacturing Firms Learn from Exporting?," Journal of Development Studies, Taylor & Francis Journals, vol. 40(3), pages 115-141.
  7. Catherine A. Pattillo & Taye Mengistae, 2002. "Export Orientation and Productivity in Sub-Saharan Africa," IMF Working Papers 02/89, International Monetary Fund.
  8. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
  9. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
  10. M�ns S–derbom & Francis Teal, 2003. "Are Manufacturing Exports the Key to Economic Success in Africa?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 12(1), pages 1-29, March.
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