Trade Liberalization and Domestic Suppliers: Evidence from Chile

58 Pages Posted: 28 Feb 2015

Date Written: November 21, 2014

Abstract

I examine the effect of reducing export tariffs on the productivity of domestic suppliers of exporting firms. Using a panel of Chilean firms during a period of trade liberalization with the European Union, the United States, and the Republic of Korea, I show that the average reduction in the export tariff of downstream industries (1.1 percentage points) increases the productivity of intermediate input suppliers by 1.5 percent. The increase in productivity among domestic suppliers accounts for 22.5 percent of aggregate productivity gains. I find that tariff cuts induce firms to acquire new machinery and pay higher wages to skilled workers. These findings are consistent with a simple model in which lower export tariffs increase the sales of exporting firms and increase the derived demand for intermediates through input-output linkages.

Keywords: productivity, trade liberalization, exports, input-output linkages

JEL Classification: D21, F12, L60

Suggested Citation

Linarello, Andrea, Trade Liberalization and Domestic Suppliers: Evidence from Chile (November 21, 2014). Bank of Italy Temi di Discussione (Working Paper) No. 994, Available at SSRN: https://ssrn.com/abstract=2571301 or http://dx.doi.org/10.2139/ssrn.2571301

Andrea Linarello (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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