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Tariffs, productivity, and resource misallocation

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  • Michael Kilumelume
  • Bruno Morando
  • Carol Newman
  • John Rand

Abstract

An often-neglected potential negative consequence of tariffs is the impact they may have on the misallocation of factor inputs. Trade protection can provide space for domestic firms to increase prices and mark-ups, allowing low-productivity firms to survive, thereby leading to a sub-optimal allocation of resources. This paper explores the impact of tariffs on the allocation of capital using administrative data from South Africa. We find that tariffs are highly correlated with capital misallocation, leading to aggregate productivity losses of 5-10 per cent.

Suggested Citation

  • Michael Kilumelume & Bruno Morando & Carol Newman & John Rand, 2021. "Tariffs, productivity, and resource misallocation," WIDER Working Paper Series wp-2021-174, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2021-174
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    References listed on IDEAS

    as
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    Keywords

    Tariffs; Productivity; Misallocation; South Africa;
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