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Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants

  • Nina Pavcnik

This paper empirically investigates the effects of trade liberalization on plant productivity in the case of Chile. Chile presents an interesting setting to study this relationship since it underwent a massive trade liberalization that significantly exposed its plants to competition from abroad during the late 1970s and early 1980s. Methodologically, I approach this question in two steps. In the first step, I estimate a production function to obtain a measure of plant productivity. I estimate the production function semiparametrically to correct for the presence of selection and simultaneity biases in the estimates of the input coefficients required to construct a productivity measure. I explicitly incorporate plant exit in the estimation to correct for the selection problem induced by liquidated plants. These methodological aspects are important in obtaining a reliable plant-level productivity measure based on consistent estimates of the input coefficients. In the second step, I identify the impact of trade liberalization on plants' productivity in a regression framework allowing variation in productivity over time and across traded- and nontraded-goods sectors. Using plant-level panel data on Chilean manufacturers, I find evidence of within plant productivity improvements that can be attributed to a liberalized trade policy, especially for the plants in the import-competing sector. In many cases, aggregate productivity improvements stem from the reshuffling of resources and output from less to more efficient producers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7852.

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Date of creation: Aug 2000
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Publication status: published as Pavcnik, Nina. "Trade Liberalization, Exit, And Productivity Improvements: Evidence From Chilean Plants," Review of Economic Studies, 2002, v69(1,238,Jan), 245-276.
Handle: RePEc:nbr:nberwo:7852
Note: ITI PR
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  1. Good, D. & Nadiri, M.I. & Sickles, R., 1996. "Index Number and Factor Demand Approaches to the Estimarion of Productivity," Working Papers 96-34, C.V. Starr Center for Applied Economics, New York University.
  2. Tor Jakob Klette, 1996. "R&D, Scope Economies, and Plant Performance," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 502-522, Autumn.
  3. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
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  5. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
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  7. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1989. "Production Frontiers With Cross-Sectinal And Time-Series Variation In Efficiency Levels," Working Papers 89-18, C.V. Starr Center for Applied Economics, New York University.
  8. James Levinsohn, 1996. "Firm Heterogeneity, Jobs, and International Trade: Evidence from Chile," NBER Working Papers 5808, National Bureau of Economic Research, Inc.
  9. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
  10. Andrews, Donald W K, 1991. "Asymptotic Normality of Series Estimators for Nonparametric and Semiparametric Regression Models," Econometrica, Econometric Society, vol. 59(2), pages 307-45, March.
  11. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  12. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December.
  13. Ariel Pakes & Steven Olley, 1994. "A Limit Theorem for a Smooth Class of Semiparametric Estimators," Cowles Foundation Discussion Papers 1066, Cowles Foundation for Research in Economics, Yale University.
  14. Ariel Pakes, 1991. "Dynamic Structural Models: Problems and Prospects. Mixed Continuous Discrete Controls and Market Interactions," Cowles Foundation Discussion Papers 984, Cowles Foundation for Research in Economics, Yale University.
  15. 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.
  16. Tybout, James & de Melo, Jaime & Corbo, Vittorio, 1990. "The effects of trade reforms on scale and technical efficiency : new evidence from Chile," Policy Research Working Paper Series 481, The World Bank.
  17. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
  18. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, vol. 39(1-2), pages 53-78, August.
  19. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
  20. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
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