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The Impact of Protection on Observed Productivity Distributions

Listed author(s):
  • Igor Bagayev
  • Ronald B. Davies

As is well established, one prediction of the heterogenous firms literature spearheaded by Melitz (2003) is that trade liberalization, by increasing import competition, drives less productive domestic firms from the market. This increases average productivity of the domestic economy via the “selection effect”. In addition, it has the potential to affect the skewness of the observed productivity distribution, i.e. the gap between the productivity of the median firm and average productivity. We examine these predictions empirically using data on 28 sectors across 99 countries. On the whole, we find that higher protection levels lower average productivity and drive a larger wedge between mean and median productivity. This latter suggests that policy decisions based on mean outcomes may arrive at different conclusions than those based on median voters.

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File URL: http://hdl.handle.net/10197/8376
File Function: First version, 2017
Download Restriction: no

Paper provided by School of Economics, University College Dublin in its series Working Papers with number 201705.

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Length: 32 pages
Date of creation: Feb 2017
Handle: RePEc:ucn:wpaper:201705
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UCD, Belfield, Dublin 4

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Web page: http://www.ucd.ie/economics

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  1. Robert C. Feenstra, 2014. "Restoring the Product Variety and Pro-competitive Gains from Trade with Heterogeneous Firms and Bounded Productivity," NBER Working Papers 19833, National Bureau of Economic Research, Inc.
  2. Krautheim, Sebastian & Schmidt-Eisenlohr, Tim, 2011. "Heterogeneous firms, 'profit shifting' FDI and international tax competition," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 122-133, February.
  3. di Giovanni, Julian & Levchenko, Andrei A. & Rancière, Romain, 2011. "Power laws in firm size and openness to trade: Measurement and implications," Journal of International Economics, Elsevier, vol. 85(1), pages 42-52, September.
  4. Bauer, Christian & Davies, Ronald B. & Haufler, Andreas, 2014. "Economic integration and the optimal corporate tax structure with heterogeneous firms," Journal of Public Economics, Elsevier, vol. 110(C), pages 42-56.
  5. Nigai, Sergey, 2017. "A tale of two tails: Productivity distribution and the gains from trade," Journal of International Economics, Elsevier, vol. 104(C), pages 44-62.
  6. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  7. Keith Head & Thierry Mayer & Mathias Thoenig, 2014. "Welfare and Trade without Pareto," American Economic Review, American Economic Association, vol. 104(5), pages 310-316, May.
  8. Mahdi Ghodsi & Julia Grübler & Robert Stehrer, 2016. "Estimating Importer-Specific Ad Valorem Equivalents of Non-Tariff Measures," wiiw Working Papers 129, The Vienna Institute for International Economic Studies, wiiw.
  9. Chor, Davin, 2009. "Subsidies for FDI: Implications from a model with heterogeneous firms," Journal of International Economics, Elsevier, vol. 78(1), pages 113-125, June.
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  11. Mahdi Ghodsi & Julia Grübler & Robert Stehrer, 2016. "Import Demand Elasticities Revisited," wiiw Working Papers 132, The Vienna Institute for International Economic Studies, wiiw.
  12. Matthew T. Cole (University College Dublin) Ronald B. Davies (University College Dublin), 2009. "Optimal Tariffs, Tariff Jumping, and Heterogeneous Firms," The Institute for International Integration Studies Discussion Paper Series iiisdp302, IIIS.
  13. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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  15. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  16. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
  17. Ronald B. Davies & Arman Mazhikeyev, 2015. "The Impact of Special Economic Zones on Exporting Behavior," Working Papers 201528, School of Economics, University College Dublin.
  18. Richard Baldwin & Toshihiro Okubo, 2009. "Tax Reform, Delocation, and Heterogeneous Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 741-764, December.
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  20. Ronald B. Davies & Arman Mazhikeyev, 2015. "The Glass Border: Gender and Exporting in Developing Countries," Working Papers 201525, School of Economics, University College Dublin.
  21. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-973, October.
  22. Matthew T. Cole, 2009. "The choice of modeling firm heterogeneity and trade restrictions," Working Papers 200920, School of Economics, University College Dublin.
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