This paper empirically investigates the effects of trade liberalization on plant productivity in the case of Chile. Chile presents an interesting setting to study this relationship since it underwent a massive trade liberalization that significantly exposed its plants to competition from abroad during the late 1970s and early 1980s. Methodologically, I approach this question in two steps. In the first step, I estimate a production function to obtain a measure of plant productivity. I estimate the production function semi-parametrically to correct for the presence of selection and simultaneity biases in the estimates of the input coefficients required to construct a productivity measure. I explicitly incorporate plant exit in the estimation to correct for the selection problem induced by liquidated plants. These methodological aspects are important in obtaining a reliable plant-level productivity measure based on consistent estimates of the input coefficients. In the second step, I identify the impact of trade liberalization on plants’ productivity in a regression framework allowing variation in productivity over time and across traded- and non-traded-goods sectors. Using plant-level panel data on Chilean manufacturers, I find evidence of within plant productivity improvements that can be attributed to a liberalized trade policy, especially for the plants in the import-competing sector. In many cases, aggregate productivity improvements stem from the reshuffling of resources and output from less to more efficient producers.
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Ramondo, N. and Rodriguez-Clare, A. (forthcoming) “Trade, Multinational Production, and the Gains from Openness,” Journal of Political Economy.
Ramondo, N., Rodriguez-Clare, A. and Saborio-Rodriguez, M. (2012) “Scale Effects and Productivity Across Countries: Does Country Size Matter?”
This paper quantifies the gains from openness arising from trade and multinational production (MP). We present a model that captures key dimensions of the interaction between these two flows: Trade and MP are competing ways to serve a foreign market; MP relies on imports of intermediate goods from the home country; and foreign affiliates of multinationals can export part of their output. The calibrated model implies that the gains from trade can be twice as high as the gains calculated in trade-only models, while the gains from MP are slightly lower than the gains computed in MP-only models.
Rodriguez, F. and Rodrik, D. (2000) “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross-National Evidence,” in Bernanke, B. and Rogoff, K. (eds.) NBER Macroeconomics Annual. National Bureau of Economic Research, Inc, pp. 261–338.
Young, A. (1991) “Learning by Doing and the Dynamic Effects of International Trade,” The Quarterly Journal of Economics, 106(2), pp. 369–405. Available at: Link.
Do countries with lower policy-induced barriers to international trade grow faster, once other relevant country characteristics are controlled for? There exists a large empirical literature providing an affirmative answer to this question. We argue that methodological problems with the empirical strategies employed in this literature leave the results open to diverse interpretations. In many cases, the indicators of "openness" used by researchers are poor measures of trade barriers or are highly correlated with other sources of bad economic performance. In other cases, the methods used to ascertain the link between trade policy and growth have serious shortcomings. Papers that we review include Dollar (1992), Ben-David (1993), Sachs and Warner (1995), and Edwards (1998). We find little evidence that open trade policies–in the sense of lower tariff and non-tariff barriers to trade–are significantly associated with economic growth.