Reassessing the Productivity Gains from Trade Liberalization

By JaeBin Ahn, Era Dabla-Norris, Romain A Duval, Bingjie Hu, Lamin Njie

March 23, 2016

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JaeBin Ahn, Era Dabla-Norris, Romain A Duval, Bingjie Hu, and Lamin Njie. Reassessing the Productivity Gains from Trade Liberalization, (USA: International Monetary Fund, 2016) accessed September 19, 2024

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

This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country-industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non-tariff barriers. Finally, we find strong evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.

Subject: Balance of payments, Foreign direct investment, International trade, Production, Productivity, Tariffs, Taxes, Total factor productivity, Trade liberalization

Keywords: Complementarity regression, FDI, Fiscal affair, Foreign direct investment, Global, Growth, Input tariff, Inputs, Liberalization, Output tariff, Productivity, Productivity gains from trade liberalization, Reforms, Research department, Tariff data, Tariff liberalization, Tariff rate, Tariffs, Total factor productivity, Trade, Trade liberalization, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/077
Stock No:

WPIEA2016077
ISBN:

9781475546774
ISSN:

1018-5941

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