Reassessing the Productivity Gains from Trade Liberalization

Author/Editor:

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

Publication Date:

March 23, 2016

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 16/77

Subject:

English

Publication Date:

March 23, 2016

ISBN/ISSN:

9781475546774/1018-5941

Stock No:

WPIEA2016077

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

31

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