Trade Liberalization and Firm Productivity: The Case of India

IMF Working Papers, February 1, 2004

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Examines effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector using a panel of firm-level data.
The tariff reductions were rapid and comprehensive and were part of an IMF-supported adjustment program with India in 1991.
Leverages variations in inter-industry and intertemporal tariffs to establish a causal link with consistently estimated firm productivity.

Reductions in trade protectionism lead to higher levels and growth of firm productivity.
The effect of trade liberalization on productivity is strongest for private companies.
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.

Uses a panel of firm-level data to measure firm productivity and its evolution over time in response to tariff changes.
Exploits inter-industry and intertemporal variation in tariffs to identify causal impacts on productivity.

Subjects: International trade, Production, Productivity, Tariffs, Taxes, Total factor productivity, Trade liberalization, Trade policy
Keywords: Asia and Pacific, choice of variable inputs, endogeneity of protection, firm, firm productivity, firms in state, Indian manufacturing, industry, industry level, measure of TFP, Middle East, panel data, Productivity, productivity measure, productivity shock, public sector firm, raw material input, Tariffs, Total factor productivity, Trade liberalization, Trade policy, trade protection, WP

1. India: External Tariffs
- 1. India: External Tariffs (Markdown version)
- 1. India: External Tariffs (PDF)