The Impact of Trade Liberalization on Productivity Within and Across Industries: Theory and Evidence

34 Pages Posted: 15 Aug 2007

See all articles by Josh Ederington

Josh Ederington

University of Kentucky - Department of Economics

Phillip McCalman

University of California, Santa Cruz - Department of Economics

Date Written: July 2007

Abstract

Numerous studies have investigated the link between trade policy and firm productivity. Despite justifying firm level analysis on the basis of considerable heterogeneity between firms within narrowly defined industries, these studies typically constrain all firms to have the same expected response to changes in trade policy. In this paper we develop a theoretical model that accounts for the existence of firm level heterogeneity within industries and predicts that the equilibrium response to changes in trade policy will also be heterogeneous in terms of both sign and size. The variation in firm level reaction is shown to be determined by both firm and industry characteristics and therefore the equilibrium response to trade policy is predicted to vary not only within industries but also across industries. These results allow us to use both sources of variation in the data. We examine these predictions on a firm level data set for the Colombian manufacturing sector in the 1980's and find strong support for them.

Keywords: tariffs, technology diffusion, productivity

JEL Classification: F10, F12, F13, F14

Suggested Citation

Ederington, Josh and McCalman, Phillip, The Impact of Trade Liberalization on Productivity Within and Across Industries: Theory and Evidence (July 2007). Available at SSRN: https://ssrn.com/abstract=1007213 or http://dx.doi.org/10.2139/ssrn.1007213

Josh Ederington (Contact Author)

University of Kentucky - Department of Economics ( email )

335 Business and Economics Building
Lexington, KY 40506
United States

Phillip McCalman

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States
(831) 459-4381 (Phone)
(831) 459-5900 (Fax)

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