{
  "title": "How Lowering Trade Barriers Can Revive Global Productivity and Growth",
  "publication": "IMF Blog, June 20, 2016",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2016/06/20/how-lowering-trade-barriers-can-revive-global-productivity-and-growth",
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  "summary": "Publication: Era Dabla‑Norris, Romain Duval — June 20, 2016.",
  "sections": [
    {
      "heading": "Overview and context",
      "content": "- Publication: Era Dabla‑Norris, Romain Duval — June 20, 2016.\n- Central message: Easing barriers to international trade and foreign direct investment (FDI) could boost productivity and output, helping address weak productivity growth since the global financial crisis.\n- Recent policy momentum: Trans‑Pacific Partnership (TPP) and ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations highlight productivity and growth on policymakers’ agendas.\n- Empirical scope: New research uses a unique database of effective tariffs in 18 sectors across 18 advanced countries spanning more than two decades."
    },
    {
      "heading": "Mechanisms: How trade and FDI liberalization lift productivity and output",
      "content": "- Increased competition:\n  - Lower trade and FDI barriers on final goods strengthen competition in liberalized sectors.\n  - Effects include exploitation of economies of scale, improved efficiency, absorption of foreign technology, and innovation.\n- Enhanced variety and quality of inputs:\n  - Trade liberalization increases the quality and variety of intermediate inputs used in final goods production.\n- Relative importance:\n  - Productivity gains from tariff cuts on intermediate inputs outweigh gains from cutting “output tariffs” (tariffs on final goods).\n  - Trade liberalization in upstream industries that use intermediate inputs matters more for sector‑level productivity than liberalization in the sector itself.\n  - Quantitative finding: A one per cent reduction in input tariffs raises total factor productivity levels by about two percent.\n  - Timing: Productivity gains materialize within 1-5 years, with effects leveling off thereafter."
    },
    {
      "heading": "Size of estimated productivity gains",
      "content": "- Historical contribution:\n  - For countries in the sample, input tariffs fell on average by 0.5 percentage point over the decade 1997-2007, translating into an average productivity gain of about 1 percent.\n- Potential gains from eliminating remaining tariffs (back‑of‑the‑envelope):\n  - Aggregate productivity could rise by around 1 percent, on average, across advanced economies.\n  - Country variation: potential gains range from a 0.2 percent gain in Japan to a 5 percent gain in Korea.\n  - Larger estimated potential gains for Ireland and Korea:\n    - Korea: higher remaining effective tariffs than other advanced countries in the sample.\n    - Ireland: strong reliance on imported inputs, especially in chemical and pharmaceutical sectors.\n- Caveat: These estimates are lower bounds because they do not account for gains from reallocation across industries or reduction of non‑tariff barriers."
    },
    {
      "heading": "Complementarities with FDI and other policies",
      "content": "- FDI amplifies tariff liberalization effects:\n  - Productivity gains from reductions in both “output” tariffs and input tariffs tend to be higher in countries with less restrictive FDI regimes.\n  - Possible mechanism: foreign firms use imported inputs more effectively and pay a lower fixed cost for importing, magnifying the input channel.\n- Quantitative interaction:\n  - When the FDI restrictiveness index is at the 75th percentile, the impact of a 1 percentage point drop in input tariffs on total factor productivity ranges from zero to -1 percent.\n  - When FDI restrictiveness is at the 25th percentile, the same 1 percentage point drop in input tariffs yields an impact ranging from 3 percent to 4 percent.\n- Broader complementarities:\n  - Gains from trade liberalization may be larger alongside reforms in labor and product markets and reductions in “behind‑the‑border barriers.”\n  - Non‑tariff barrier reduction, especially in services and customs procedures, is an increasingly important channel."
    },
    {
      "heading": "Policy takeaways and recommendations",
      "content": "- Case for further liberalization:\n  - Further reduction of tariffs and non‑tariff barriers can raise productivity and output; estimates understate potential gains by overlooking non‑tariff liberalization benefits.\n  - Emerging and low‑income countries, with comparatively higher barriers, could achieve even higher productivity gains.\n- Parallel reforms to amplify benefits:\n  - Reduce barriers to FDI in parallel with tariff and non‑tariff liberalization.\n  - Consider reforms in labor and product markets and reductions in domestic regulatory barriers to increase the productivity dividend.\n- Compensating policies for distributional effects:\n  - Recognize potential costs: reallocation can cause wage cuts, job losses, and sectoral or geographic dislocation.\n  - Implement supportive labor market policies (e.g., education and training) and other interventions to compensate displaced workers and promote equitable adjustment.\n  - Include labor standards or other labor provisions in trade agreements to help distribute benefits more widely.\n\nSource: How Lowering Trade Barriers Can Revive Global Productivity and Growth — Era Dabla‑Norris, Romain Duval, June 20, 2016.\n\n---\n\n\n References\n\n- New research\n- https://www.imf.org/wp-content/uploads/2016/06/slide1.jpg\n- https://www.imf.org/wp-content/uploads/2016/06/slide2.jpg\n\nSource: https://www.imf.org/en/blogs/articles/2016/06/20/how-lowering-trade-barriers-can-revive-global-productivity-and-growth"
    }
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    "Authors: Era Dabla-Norris, Romain Duval",
    "Published: June 20, 2016",
    "Publication: Era Dabla‑Norris, Romain Duval — June 20, 2016.",
    "Central message: Easing barriers to international trade and foreign direct investment (FDI) could boost productivity and output, helping address weak productivity growth since the global financial crisis.",
    "Recent policy momentum: Trans‑Pacific Partnership (TPP) and ongoing Transatlantic Trade and Investment Partnership (TTIP) negotiations highlight productivity and growth on policymakers’ agendas.",
    "Empirical scope: New research uses a unique database of effective tariffs in 18 sectors across 18 advanced countries spanning more than two decades.",
    "Increased competition:",
    "Enhanced variety and quality of inputs:",
    "Relative importance:",
    "Historical contribution:",
    "Potential gains from eliminating remaining tariffs (back‑of‑the‑envelope):",
    "Caveat: These estimates are lower bounds because they do not account for gains from reallocation across industries or reduction of non‑tariff barriers.",
    "FDI amplifies tariff liberalization effects:",
    "Quantitative interaction:",
    "Broader complementarities:",
    "Case for further liberalization:",
    "Parallel reforms to amplify benefits:",
    "Compensating policies for distributional effects:",
    "[New research](https://www.imf.org/external/pubs/cat/longres.aspx?sk=43828.0)",
    "[https://www.imf.org/wp-content/uploads/2016/06/slide1.jpg](https://www.imf.org/wp-content/uploads/2016/06/slide1.jpg)",
    "[https://www.imf.org/wp-content/uploads/2016/06/slide2.jpg](https://www.imf.org/wp-content/uploads/2016/06/slide2.jpg)"
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