Trade Liberalization and Firm Productivity: The Case of India
The Review of Economics and Statistics, Vol. 93, No. 3, pp. 995-1009, 2011
41 Pages Posted: 26 Oct 2011
Date Written: 2011
This paper exploits India's rapid, comprehensive and externally imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we find no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms.
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