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Heterogeneous Productivity Response to Tariff Reduction: Evidence from Brazilian Manufacturing Firms

  • Adriana Schor
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    This paper studies the effects of trade liberalization on the evolution of firm productivity. The productivity of each firm was estimated using an unbalanced panel data of 4,484 Brazilian manufacturing firms from 1986 to 1998, following the procedure first proposed by Olley and Pakes (1996) and further developed by Levinsohn and Petrin (2003). First, the effect of nominal tariffs on firms' productivity levels is identified. After controlling for the endogeneity of nominal tariffs, the estimated coefficient for tariffs in the productivity equation turns out to be negative. Second, a measure of tariffs on inputs is added in the productivity equation. The coefficient associated with tariffs on inputs is also negative, and the inclusion of this new variable reduces the size of the estimated coefficient of nominal tariffs. Thus, it seems that, along with the increased competition, the new access to inputs that embody better foreign technology also contributes to productivity gains after trade liberalization. Third, it is shown that there is a huge degree of heterogeneity of responses to trade liberalization. The effect of the tariff reductions depends heavily on observed and unobserved characteristics of the firm.

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    File URL: http://www.nber.org/papers/w10544.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10544.

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    Date of creation: Jun 2004
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    Publication status: published as Schor, Andriana. "Heterogeneous Productivity Response To Tariff Reduction: Evidence From Brazilian Manufacturing Firms," Journal of Development Economics, 2004, v75(2,Dec), 373-396.
    Handle: RePEc:nbr:nberwo:10544
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    1. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
    2. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    3. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
    4. Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 88-126.
    5. Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991. "The effects of trade reforms on scale and technical efficiency : New evidence from Chile," Journal of International Economics, Elsevier, vol. 31(3-4), pages 231-250, November.
    6. Fernandes, Ana M., 2003. "Trade policy, trade volumes, and plant-level productivity in Colombian manufacturing industries," Policy Research Working Paper Series 3064, The World Bank.
    7. James Tybout, 1999. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Development and Comp Systems 9906001, EconWPA, revised 10 Jun 1999.
    8. Aw, Bee Yan & Chen, Xiaomin & Roberts, Mark J., 2001. "Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing," Journal of Development Economics, Elsevier, vol. 66(1), pages 51-86, October.
    9. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
    10. Iscan, T., 1996. "Trade Liberalization and Productivity: A Panel Study of the Mexican Manufacturing Industry," Department of Economics at Dalhousie University working papers archive 97-05, Dalhousie, Department of Economics.
    11. Ferreira, Pedro Cavalcanti Gomes, 2000. "Monopoly Power, Trade Protection and Growth: Cross Industry Evidence," Economics Working Papers (Ensaios Economicos da EPGE) 381, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).
    12. James R. Tybout, 2001. "Plant- and Firm-Level Evidence on "New" Trade Theories," NBER Working Papers 8418, National Bureau of Economic Research, Inc.
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