Reassessing the Productivity Gains from Trade Liberalization

32 Pages Posted: 27 Sep 2016

See all articles by JaeBin Ahn

JaeBin Ahn

International Monetary Fund (IMF)

Era Dabla-Norris

International Monetary Fund (IMF)

Romain Duval

International Monetary Fund (IMF)

Bingjie Hu

International Monetary Fund (IMF)

Lamin Njie

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2016

Abstract

This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country-industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non-tariff barriers. Finally, we find strong evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.

Keywords: Trade, Productivity, Tariffs, Inputs, Liberalization, FDI, Reforms, Growth.

JEL Classification: F13, F14, F43, O43

Suggested Citation

Ahn, JaeBin and Dabla-Norris, Era and Duval, Romain and Hu, Bingjie and Njie, Lamin, Reassessing the Productivity Gains from Trade Liberalization (March 2016). IMF Working Paper No. 16/77. Available at SSRN: https://ssrn.com/abstract=2844154

JaeBin Ahn (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Era Dabla-Norris

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Romain Duval

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Bingjie Hu

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Lamin Njie

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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