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The Impact of Protection on Observed Productivity Distributions

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  • Igor Bagayev
  • Ronald B. Davies

Abstract

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.

Suggested Citation

  • Igor Bagayev & Ronald B. Davies, 2017. "The Impact of Protection on Observed Productivity Distributions," Working Papers 201705, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:201705
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    File URL: http://hdl.handle.net/10197/8376
    File Function: First version, 2017
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Productivity distribution; Heterogeneous firms; Non-tariff measures;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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