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Efficiency Gains from Trade Reform: Foreign Technology or Import Competition? Evidence from South Africa’s Manufacturing Sector

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  • Shendy, Riham

Abstract

The empirical trade literature examining the effect of tariff reductions on productivity commonly proxies the former with Nominal Tariff Rates(NTR) and estimates the latter as the production function residual. In the context of the South African trade reform experience we examine the different channels by which tariff cuts affect productivity growth. Using industry level data for the manufacturing sector and covering the reform period from 1994 to 2004, we disentangle the differential effect of increased foreign competition, proxied by reductions in NTR, and that of the imported technology, proxied by the reductions in Input Tariff Rates (ITR), on productivity growth. Our measure of efficiency growth controls for the effect of tariff reductions on markups. The results suggest that the efficiency difference between foreign and domestic inputs have the major effect on productivity gains. Declines in ITR significantly raise productivity growth compared to an insignificant effect for NTR. Additionally, we find that higher protection rates are associated with higher markups, albeit this finding is not robust across all specifications.

Suggested Citation

  • Shendy, Riham, 2007. "Efficiency Gains from Trade Reform: Foreign Technology or Import Competition? Evidence from South Africa’s Manufacturing Sector," Economics Working Papers ECO2007/18, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2007/18
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    References listed on IDEAS

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    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, pages 52-71.
    3. Pedro Cavalcanti Ferreira & JosÈ Luiz Rossi, 2003. "New Evidence from Brazil on Trade Liberalization and Productivity Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1383-1405, November.
    4. Philippe Aghion & Matias Braun & Johannes Fedderke, 2008. "Competition and productivity growth in South Africa," The Economics of Transition, The European Bank for Reconstruction and Development, pages 741-768.
    5. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, pages 1611-1638.
    6. Johannes Fedderke & Chandana Kularatne & Martine Mariotti, 2007. "Mark-up Pricing in South African Industry," Journal of African Economies, Centre for the Study of African Economies (CSAE), pages 28-69.
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    More about this item

    Keywords

    Productivity; Trade Reform; Tariffs; Manufacturing; South Africa;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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