Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants

65 Pages Posted: 2 Oct 2000 Last revised: 5 Oct 2001

See all articles by Nina Pavcnik

Nina Pavcnik

Dartmouth College - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2000

Abstract

This paper empirically investigates the effects of trade liberalization on plant productivity in the case of Chile. Chile presents an interesting setting to study this relationship since it underwent a massive trade liberalization that significantly exposed its plants to competition from abroad during the late 1970s and early 1980s. Methodologically, I approach this question in two steps. In the first step, I estimate a production function to obtain a measure of plant productivity. I estimate the production function semiparametrically to correct for the presence of selection and simultaneity biases in the estimates of the input coefficients required to construct a productivity measure. I explicitly incorporate plant exit in the estimation to correct for the selection problem induced by liquidated plants. These methodological aspects are important in obtaining a reliable plant-level productivity measure based on consistent estimates of the input coefficients. In the second step, I identify the impact of trade liberalization on plants' productivity in a regression framework allowing variation in productivity over time and across traded- and nontraded-goods sectors. Using plant-level panel data on Chilean manufacturers, I find evidence of within plant productivity improvements that can be attributed to a liberalized trade policy, especially for the plants in the import-competing sector. In many cases, aggregate productivity improvements stem from the reshuffling of resources and output from less to more efficient producers.

Suggested Citation

Pavcnik, Nina, Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants (August 2000). NBER Working Paper No. w7852. Available at SSRN: https://ssrn.com/abstract=239609

Nina Pavcnik (Contact Author)

Dartmouth College - Department of Economics ( email )

6106 Rockefeller Hall
Hanover, NH 03755
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603-646-2537 (Phone)
603-646-2122 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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