Productivity Matters for Trade Policy : Theory and Evidence
There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically a...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2006/05/6801793/productivity-matters-trade-policy-theory-evidence http://hdl.handle.net/10986/8448 |
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okr-10986-84482021-04-23T14:02:40Z Productivity Matters for Trade Policy : Theory and Evidence Karacaovali, Baybars AGGREGATE DEMAND AGGREGATE SUPPLY AVERAGE PRODUCTIVITY CONSTANT RETURNS TO SCALE CONSUMER PRICE INDEX CONSUMERS DEBT DEFLATORS DEMAND ELASTICITY DEMAND SHOCKS DEVELOPMENT ECONOMICS DOMESTIC PRICE DOMESTIC PRICES ECONOMETRIC ANALYSIS ECONOMIC OUTCOMES ECONOMIC STRUCTURE ECONOMICS RESEARCH ECONOMIES OF SCALE ELASTICITY EUROPEAN UNION EXPECTED VALUE EXPECTED VALUES EXPORT SUBSIDIES FACTOR MARKETS FOREIGN TECHNOLOGY GROWTH RATE IMPACT OF TRADE IMPERFECT COMPETITION IMPORT PENETRATION IMPORT SUBSTITUTION IMPORTS INDUSTRIAL POLICIES INDUSTRIALIZED NATIONS INFANT INDUSTRY INFANT INDUSTRY ARGUMENT INFANT INDUSTRY ARGUMENTS INTERNATIONAL CONSENSUS INTERNATIONAL PRICES INTERNATIONAL STANDARD INTERNATIONAL TRADE LABOR INTENSIVE LATIN AMERICAN MARGINAL REVENUE MONOPOLISTIC COMPETITION NON-TARIFF BARRIER OPEN ECONOMY OPENNESS OPPORTUNITY COST POLICY RESEARCH POLITICAL ECONOMY POLITICAL ECONOMY OF TRADE POLITICAL ECONOMY OF TRADE POLICY PRODUCTION FUNCTION PRODUCTIVITY PRODUCTIVITY GROWTH PROTECTIONISM REAL EXCHANGE RATE REAL EXCHANGE RATES REDUCTION IN TARIFFS SOCIAL WELFARE SPECIALIZATION TARIFF BARRIER TARIFF POLICY TARIFF PROTECTION TARIFF RATE TARIFF RATES TARIFF REDUCTIONS TARIFF REVENUE TAX TERMS OF TRADE TOTAL FACTOR PRODUCTIVITY TRADE LIBERALIZATION TRADE LIBERALIZATION PERIOD TRADE POLICIES TRADE POLICY TRADE PROTECTION TRADE REFORM UNILATERAL LIBERALIZATION UNILATERAL TRADE UNILATERAL TRADE LIBERALIZATION UTILITY FUNCTIONS VALUE ADDED WAGE RATE WAGES WORLD PRICES There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically and empirically, and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. On the theory side, he demonstrates that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. The link between productivity and tariffs is maintained after the author includes in his political economy model a learning-by-doing motive of protection, which also serves as the source of liberalization. On the empirical side, he examines total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998, and finds that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, he controls for the endogeneity of the two main right-hand-side variables-the inverse import penetration to import demand elasticity ratio and productivity-by using materials prices, the capital to output ratio, a measure of scale economies, and the TFP of the upstream industries as robust instruments. The author also accounts for the large trade liberalization between 1990 and 1992, and finds that the sectors with a higher productivity gain are liberalized less. Finally, he illustrates a system of equations estimation and shows that the positive impact of liberalization on productivity grows stronger when corrected for the endogeneity bias. 2012-06-19T18:16:46Z 2012-06-19T18:16:46Z 2006-05 http://documents.worldbank.org/curated/en/2006/05/6801793/productivity-matters-trade-policy-theory-evidence http://hdl.handle.net/10986/8448 English Policy Research Working Paper; No. 3925 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Latin America & Caribbean Colombia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
AGGREGATE DEMAND AGGREGATE SUPPLY AVERAGE PRODUCTIVITY CONSTANT RETURNS TO SCALE CONSUMER PRICE INDEX CONSUMERS DEBT DEFLATORS DEMAND ELASTICITY DEMAND SHOCKS DEVELOPMENT ECONOMICS DOMESTIC PRICE DOMESTIC PRICES ECONOMETRIC ANALYSIS ECONOMIC OUTCOMES ECONOMIC STRUCTURE ECONOMICS RESEARCH ECONOMIES OF SCALE ELASTICITY EUROPEAN UNION EXPECTED VALUE EXPECTED VALUES EXPORT SUBSIDIES FACTOR MARKETS FOREIGN TECHNOLOGY GROWTH RATE IMPACT OF TRADE IMPERFECT COMPETITION IMPORT PENETRATION IMPORT SUBSTITUTION IMPORTS INDUSTRIAL POLICIES INDUSTRIALIZED NATIONS INFANT INDUSTRY INFANT INDUSTRY ARGUMENT INFANT INDUSTRY ARGUMENTS INTERNATIONAL CONSENSUS INTERNATIONAL PRICES INTERNATIONAL STANDARD INTERNATIONAL TRADE LABOR INTENSIVE LATIN AMERICAN MARGINAL REVENUE MONOPOLISTIC COMPETITION NON-TARIFF BARRIER OPEN ECONOMY OPENNESS OPPORTUNITY COST POLICY RESEARCH POLITICAL ECONOMY POLITICAL ECONOMY OF TRADE POLITICAL ECONOMY OF TRADE POLICY PRODUCTION FUNCTION PRODUCTIVITY PRODUCTIVITY GROWTH PROTECTIONISM REAL EXCHANGE RATE REAL EXCHANGE RATES REDUCTION IN TARIFFS SOCIAL WELFARE SPECIALIZATION TARIFF BARRIER TARIFF POLICY TARIFF PROTECTION TARIFF RATE TARIFF RATES TARIFF REDUCTIONS TARIFF REVENUE TAX TERMS OF TRADE TOTAL FACTOR PRODUCTIVITY TRADE LIBERALIZATION TRADE LIBERALIZATION PERIOD TRADE POLICIES TRADE POLICY TRADE PROTECTION TRADE REFORM UNILATERAL LIBERALIZATION UNILATERAL TRADE UNILATERAL TRADE LIBERALIZATION UTILITY FUNCTIONS VALUE ADDED WAGE RATE WAGES WORLD PRICES |
| spellingShingle |
AGGREGATE DEMAND AGGREGATE SUPPLY AVERAGE PRODUCTIVITY CONSTANT RETURNS TO SCALE CONSUMER PRICE INDEX CONSUMERS DEBT DEFLATORS DEMAND ELASTICITY DEMAND SHOCKS DEVELOPMENT ECONOMICS DOMESTIC PRICE DOMESTIC PRICES ECONOMETRIC ANALYSIS ECONOMIC OUTCOMES ECONOMIC STRUCTURE ECONOMICS RESEARCH ECONOMIES OF SCALE ELASTICITY EUROPEAN UNION EXPECTED VALUE EXPECTED VALUES EXPORT SUBSIDIES FACTOR MARKETS FOREIGN TECHNOLOGY GROWTH RATE IMPACT OF TRADE IMPERFECT COMPETITION IMPORT PENETRATION IMPORT SUBSTITUTION IMPORTS INDUSTRIAL POLICIES INDUSTRIALIZED NATIONS INFANT INDUSTRY INFANT INDUSTRY ARGUMENT INFANT INDUSTRY ARGUMENTS INTERNATIONAL CONSENSUS INTERNATIONAL PRICES INTERNATIONAL STANDARD INTERNATIONAL TRADE LABOR INTENSIVE LATIN AMERICAN MARGINAL REVENUE MONOPOLISTIC COMPETITION NON-TARIFF BARRIER OPEN ECONOMY OPENNESS OPPORTUNITY COST POLICY RESEARCH POLITICAL ECONOMY POLITICAL ECONOMY OF TRADE POLITICAL ECONOMY OF TRADE POLICY PRODUCTION FUNCTION PRODUCTIVITY PRODUCTIVITY GROWTH PROTECTIONISM REAL EXCHANGE RATE REAL EXCHANGE RATES REDUCTION IN TARIFFS SOCIAL WELFARE SPECIALIZATION TARIFF BARRIER TARIFF POLICY TARIFF PROTECTION TARIFF RATE TARIFF RATES TARIFF REDUCTIONS TARIFF REVENUE TAX TERMS OF TRADE TOTAL FACTOR PRODUCTIVITY TRADE LIBERALIZATION TRADE LIBERALIZATION PERIOD TRADE POLICIES TRADE POLICY TRADE PROTECTION TRADE REFORM UNILATERAL LIBERALIZATION UNILATERAL TRADE UNILATERAL TRADE LIBERALIZATION UTILITY FUNCTIONS VALUE ADDED WAGE RATE WAGES WORLD PRICES Karacaovali, Baybars Productivity Matters for Trade Policy : Theory and Evidence |
| geographic_facet |
Latin America & Caribbean Colombia |
| relation |
Policy Research Working Paper; No. 3925 |
| description |
There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically and empirically, and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. On the theory side, he demonstrates that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. The link between productivity and tariffs is maintained after the author includes in his political economy model a learning-by-doing motive of protection, which also serves as the source of liberalization. On the empirical side, he examines total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998, and finds that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, he controls for the endogeneity of the two main right-hand-side variables-the inverse import penetration to import demand elasticity ratio and productivity-by using materials prices, the capital to output ratio, a measure of scale economies, and the TFP of the upstream industries as robust instruments. The author also accounts for the large trade liberalization between 1990 and 1992, and finds that the sectors with a higher productivity gain are liberalized less. Finally, he illustrates a system of equations estimation and shows that the positive impact of liberalization on productivity grows stronger when corrected for the endogeneity bias. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Karacaovali, Baybars |
| author_facet |
Karacaovali, Baybars |
| author_sort |
Karacaovali, Baybars |
| title |
Productivity Matters for Trade Policy : Theory and Evidence |
| title_short |
Productivity Matters for Trade Policy : Theory and Evidence |
| title_full |
Productivity Matters for Trade Policy : Theory and Evidence |
| title_fullStr |
Productivity Matters for Trade Policy : Theory and Evidence |
| title_full_unstemmed |
Productivity Matters for Trade Policy : Theory and Evidence |
| title_sort |
productivity matters for trade policy : theory and evidence |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2006/05/6801793/productivity-matters-trade-policy-theory-evidence http://hdl.handle.net/10986/8448 |
| _version_ |
1764406034611306496 |