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The Impact of Trade Liberalization on Industrial Productivity

  • Segerstrom, Paul
  • Sugita, Yoichi

This paper calls into question the currently most influential model of international trade. An empirical finding by Trefler (2004, AER) and others that industrial productivity increases more strongly in liberalized industries than in non-liberalized industries has been widely accepted as evidence for the Melitz (2003, Econometrica) model. We show that a multi-industry version of the Melitz model does not predict this relationship. Instead, it predicts the opposite relationship that industrial productivity increases more strongly in non-liberalized industries than in liberalized industries.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9952.

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Date of creation: Apr 2014
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Handle: RePEc:cpr:ceprdp:9952
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  1. Alla Lileeva, 2008. "Trade liberalization and productivity dynamics: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 360-390, May.
  2. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
  3. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
  4. Harrison, Ann E. & Martin, Leslie A. & Nataraj, Shanthi, 2011. "Learning versus stealing : how Important are market-share -- reallocations to India's productivity growth?," Policy Research Working Paper Series 5761, The World Bank.
  5. Jen Baggs, 2005. "Firm survival and exit in response to trade liberalization," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1364-1383, November.
  6. Gabriel J. Felbermayr & Benjamin Jung & Mario Larch, 2011. "Optimal Tariffs, Retaliation and the Welfare Loss from Tariff Wars in the Melitz Model," CESifo Working Paper Series 3474, CESifo Group Munich.
  7. Helpman, Elhanan, 2011. "Understanding Global Trade," Economics Books, Harvard University Press, number 9780674060784.
  8. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," CER-ETH Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  9. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer, vol. 38(3), pages 533-559, March.
  10. 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.
  11. Svetlana Demidova & Andrés Rodríguez-Clare, 2007. "Trade Policy under Firm-Level Heterogeneity in a Small Economy," NBER Working Papers 13688, National Bureau of Economic Research, Inc.
  12. John Baldwin & Wulong Gu, 2003. "Export-market participation and productivity performance in Canadian manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 634-657, August.
  13. de Sousa, José & Mayer, Thierry & Zignago, Soledad, 2012. "Market access in global and regional trade," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1037-1052.
  14. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2013. "Trade and Market Selection: Evidence from Manufacturing Plants in Colombia," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 135-158, January.
  15. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  16. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  17. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  18. Demidova, Svetlana & Rodríguez-Clare, Andrés, 2013. "The simple analytics of the Melitz model in a small economy," Journal of International Economics, Elsevier, vol. 90(2), pages 266-272.
  19. Melitz, Marc J & Redding, Stephen J., 2013. "Heterogeneous Firms and Trade," CEPR Discussion Papers 9317, C.E.P.R. Discussion Papers.
  20. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
  21. Gros, Daniel, 1987. "A note on the optimal tariff, retaliation and the welfare loss from tariff wars in a framework with intra-industry trade," Journal of International Economics, Elsevier, vol. 23(3-4), pages 357-367, November.
  22. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
  23. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  24. Nataraj, Shanthi, 2011. "The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors," Journal of International Economics, Elsevier, vol. 85(2), pages 292-301.
  25. Sivadasan Jagadeesh, 2009. "Barriers to Competition and Productivity: Evidence from India," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-66, September.
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