Trade Liberalization and Firm Productivity : The Case of India

Author/Editor: Petia Topalova
Publication Date: February 01, 2004
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics. The rapid and comprehensive tariff reductions-part of an IMF-supported adjustment program with India in 1991-allow us to establish a causal link between variations in inter-industry and intertemporal tariffs and consistently estimated firm productivity. Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies. Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity.
Series: Working Paper No. 04/28
Subject(s): India | Trade liberalization | Trade policy

Author's Keyword(s): Trade policy | firm productivity | Indian manufacturing | endogeneity of protection
Publication Date: February 01, 2004
ISBN/ISSN: 9781451844696/1018-5941 Format: Paper
Stock No: WPIEA0282004 Pages: 38
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