Trade liberalization and inter-industry productivity spillovers: an analysis of the 1989-1998 Brazilian trade liberalization episode

Paz, Lourenco (2012): Trade liberalization and inter-industry productivity spillovers: an analysis of the 1989-1998 Brazilian trade liberalization episode.

Abstract

Since the 1980s, a common goal of the trade liberalization conducted by developing countries has been to increase manufacturing productivity. The literature has found evidence supporting such an increase in productivity; however, little is known about tariff-induced inter-industry (vertical) productivity spillovers. This paper proposes a new empirical methodology using spatial econometrics, and applies it to the large economy-wide shock represented by the Brazilian 1989–1998 trade liberalization. My results indicate the existence of positive and substantial upstream productivity spillovers. Nevertheless, no evidence of downstream productivity spillovers was found.

• Item Type: MPRA Paper
• Language: English
• Keywords: productivity, trade liberalization, Brazil, spillovers
• Subjects: L - Industrial Organization > L6 - Industry Studies: Manufacturing; F - International Economics > F1 - Trade; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

References

Amiti, M. and J. Konings, (2007). Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia. American Economic Review, 97(5), 1611-1638.

Anselin, L. (2003). Spatial Externalities, Spatial Multipliers, and Spatial Econometrics. International Regional Science Review, 26 issue 2, 153-166.

Corden, Max W. (1971). The Theory of Protection. Oxford: Oxford University Press

Drukker, D. M., I. R. Prucha, and R. Raciborski. 2011. A command for estimating spatial-autoregressive models with spatial autoregressive disturbances and additional endogenous variables. Working paper, University of Maryland, Department of Economics.

Elhorst, J. P., (2010). Dynamic panels with endogenous interaction effects when T is small. Regional Science and Urban Economics, 40, 272-282.

Ethier, W., (1982). National and International Returns to Scale in the Modern Theory of International Trade. American Economic Review, 72(3), 389-405.

Fernandes, A. M., (2007). Trade Policy, Trade Volumes and Plant-Level Productivity in Colombian Manufacturing Industries. Journal of International Economics 71, 52–71.

Ferreira, P. C. and J. L. Rossi (2003). New Evidence from Brazil on Trade Liberalization and Productivity Growth. International Economic Review, 44(4), 1383-1405.

Goldberg, P., A. Khandelwal, N. Pavcnik and P. Topalova. (2010). Imported Intermediate Inputs and Domestic Product Growth: Evidence from India. Quarterly Journal of Economics, 125(4), 1727-67.

Grossman, G. and E. Helpman. (1991). Innovation and Growth in the Global Economy. Cambridge, MA: MIT Press. IBGE (2006). Notas Técnicas Matriz de Insumo-Produto Brasil – 1985. Instituto Brasileiro de Geografia e Estatística.

Javorcik, Beata S., (2004). Does Foreign Direct Investment increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages. American Economic Review, 94(3), 605-27.

Karacaovali, B., (2011). Productivity Matters for Trade Policy: Theory and Evidence. International Economic Review, 52(1), 33-62.

Kelejian, H. and I. Prucha (1998). A generalized spatial two stage least squares procedure for estimating a spatial autoregressive model with autoregressive disturbances. Journal of Real Estate Finance and Economics, 17, 99–121.

Kelejian, H. and I. Prucha (2007). HAC Estimation in a Spatial Framework. Journal of Econometrics, 140, 131-154.

Kelejian, H. H., and D. P. Robinson (1993). A Suggested Method of Estimation for Spatial Interdependent Models with Autocorrelated Errors, and an Application to a County Expenditure Model," Papers in Regional Science, 72, 297-312.

Keller, W. (2009). International Trade, Foreign Direct Investment, and Technology Spillovers. NBER Working Paper No. 15442.

Khandelwal, A. and P. Topalova. (2011). Trade Liberalization and Firm Productivity: The Case of India. The Review of Economics and Statistics, 93(3), 995-1009.

Krishna, P., and D. Mitra, (1998). Trade liberalization, market discipline and productivity growth: new evidence from India. Journal of Development Economics, 56, 447-462.

Kume, H., G. Piani, and C.F. Souza (2003). Instrumentos de Politica Comercial no Periodo 1987-1998 in Corseuil, C. H. and H. Kume (eds.) "A abertura comercial brasileira nos anos 1990: impactos sobre emprego e salário". Rio de Janeiro: Ipea.

Markusen, J. (1989). Trade in Producer Services and in Other Specialized Intermediate Inputs. American Economic Review, 79(1), 85-95.

Melitz, M. (2003). The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. Econometrica, 71(6), 1695-1725.

Moreno, R., López-Bazo, E., Vayá, E. And Artís, M. (2004). External Effects and Cost of Production. In Anselin, L., Florax, R. and Rey, S. (eds.) “Advances in Spatial Econometrics”. Berlin ; New York : Springer-Verlag.

Muendler, Marc-Andreas, (2003). The Database Pesquisa Industrial Anual 1986-2001: A Detective's Report. Instituto Brasileiro de Geografia e Estatística, Rio de Janeiro, Mimeograph (econ.ucsd.edu/muendler/brazil).

Muendler, Marc-Andreas, (2004a). Trade, Technology, and Productivity: A Study of Brazilian Manufacturers, 1986-1998. CESifo Working Paper Series 1148, CESifo Group Munich.

Muendler, Marc-Andreas, (2004b). Estimating Production Functions When Efficiency Choice Is Endogenous. University of California, San Diego, Mimeograph.

Olley, G. and A. Pakes (1996). The Dynamics of Productivity in the Telecommunications Equipment Industry. Econometrica, 64(6), 1263-97.

Pavcnik, N. (2002). Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants. Review of Economic Studies, Wiley Blackwell, vol. 69(1), 245-76.

Roodman, D. (2006). How to Do xtabond2: An introduction to "Difference" and "System" GMM in Stata. Working Paper 103, Center for Global Development, Washington.

Schor, A. (2004). Heterogeneous Productivity Response to Tariff Reduction: Evidence from Brazilian Manufacturing Firms. Journal of Development Economics, 75(2), 373-96.

Sethupathy, G. (2007). Does Exporting Lead to Productivity Spillovers in Horizontal or Vertical Industries? Evidence from Indonesia. Discussion Paper No.: 0708-01. Department of Economics, Columbia University.

Van Beveren, I. (2011). Total Factor Productivity Estimation: A Practical Review. Journal of Economic Surveys, 26(1), 98-128.