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What gains and distributional implications result from trade liberalization?

Author

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  • Maria Bas

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Caroline Paunov

    (OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

Abstract

This paper investigates the distributional impacts of trade liberalization across firms, consumers and workers. Using firm-product-level census data for Ecuador, we exploit exogenous tariff changes at entry to the World Trade Organization. We show that with input tariff cuts firms access higher quality and new input varieties. Consequently, firms increase their product scope and quality, while their production's skill-intensity increases and costs decrease. "Real" productivity (TFPG) increases only in the medium run, following adjustments to produce more and higher quality products. Positive immediate revenue productivity (TFPR) gains result because firms' markups increase. Consumers still gain as quality-adjusted prices decrease and varieties increase. Workers benefit differentially: skilled workers' wages rise compared to less skilled worker's wages. Input-tariff liberalization also has distributional impacts across firms. Only more productive firms with high markups increase product scope and quality and gain market shares. With output-trade liberalization the least productive firms decrease their product scope.

Suggested Citation

  • Maria Bas & Caroline Paunov, 2019. "What gains and distributional implications result from trade liberalization?," Post-Print halshs-02052739, HAL.
  • Handle: RePEc:hal:journl:halshs-02052739
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02052739
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    Cited by:

    1. Bas, Maria & Paunov, Caroline, 2021. "Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization," Journal of Development Economics, Elsevier, vol. 151(C).
    2. Bas, Maria & Paunov, Caroline, 2021. "Disentangling trade reform impacts on firm market and production decisions," European Economic Review, Elsevier, vol. 135(C).

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    More about this item

    Keywords

    gains from trade; input and output tariff reductions; product scope; product quality; market share; quantity and revenue total factor productivity (TFPQ - TFPR); skill premium; markups; price; foreign inputs quality and variety; firm-product-level data; Ecuador;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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