Does Freer Trade Really Lead to Productivity Growth? Evidence from Africa

40 Pages Posted: 16 Apr 2013 Last revised: 19 May 2016

See all articles by Lauren Bresnahan

Lauren Bresnahan

University of Maryland - Department of Economics

Ian Coxhead

University of Wisconsin - Madison - Department of Agricultural & Applied Economics

Jeremy D. Foltz

University of Wisconsin - Madison - Department of Agricultural & Applied Economics

Tewodaj Mogues

International Food Policy Research Institute (IFPRI)

Date Written: May 1, 2016

Abstract

Theory predicts that trade liberalization should raise average total factor productivity (TFP) among manufacturing firms. However, this is a generic prediction and depends on maintained assumptions about industries, factor markets, and trade patterns that may not fit well for developing countries. Using firm-level data from Ghana, Kenya, and Tanzania during the 1990s, a period of fairly rapid trade policy liberalization, we estimate productivity effects of trade. Our analysis confirms the well-known association between export intensity and higher productivity of the firm; however, the evidence for “learning by exporting,” or an increase in productivity associated with greater exports, is mixed, with several instances of negative average TFP growth among exporters. Our analysis indicates that such declines are likely attributable to the effects of lower external tariffs, because the firm-level productivity margin below which exporting is unprofitable moves down as the external tariff rate is reduced. We also find that sales to the rest of the world and sales to other African economies have differential effects on productivity growth rates, and that for country-specific reasons, these effects are not uniform. Controlling for initial productivity and the destination of exports (within or outside Africa) helps us understand why in some cases, export participation is associated with negative rates of TFP growth.

Keywords: Africa, manufacturing, exports, productivity, learning by exporting

JEL Classification: F14, O14, O33

Suggested Citation

Bresnahan, Lauren and Coxhead, Ian and Foltz, Jeremy D. and Mogues, Tewodaj, Does Freer Trade Really Lead to Productivity Growth? Evidence from Africa (May 1, 2016). World Development, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2251235 or http://dx.doi.org/10.2139/ssrn.2251235

Lauren Bresnahan

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Ian Coxhead (Contact Author)

University of Wisconsin - Madison - Department of Agricultural & Applied Economics ( email )

427 Lorch St.
Madison, WI 53706-1503
United States

HOME PAGE: http://www.aae.wisc.edu/coxhead

Jeremy D. Foltz

University of Wisconsin - Madison - Department of Agricultural & Applied Economics ( email )

427 Lorch St.
Madison, WI 53706-1503
United States
608-262-6871 (Phone)
608-262-4376 (Fax)

Tewodaj Mogues

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
87
Abstract Views
745
rank
348,390
PlumX Metrics