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Trade Liberalization, Market Share Reallocation, and Aggregate Productivity: The Case of the Indonesian Manufacturing Industry
Author(s) -
Hayakawa Kazunobu,
Matsuura Toshiyuki
Publication year - 2017
Publication title -
the developing economies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.305
H-Index - 30
eISSN - 1746-1049
pISSN - 0012-1533
DOI - 10.1111/deve.12138
Subject(s) - counterfactual thinking , productivity , tariff , economics , indonesian , market share , free trade , liberalization , international economics , international trade , macroeconomics , market economy , philosophy , linguistics , epistemology , finance
We investigate how trade liberalization affects aggregate productivity growth, focusing on market reallocation as well as within‐firm productivity improvement. To this end, using Indonesian plant‐level data from 1993 to 2005, we estimate the plant‐level impact of trade liberalization focusing on productivity, output, and the probability to exit. Then, using the simple dynamic simulation method, we calculate the likely impact if tariff rates remain constant in the initial period. Comparing the actual and counterfactual scenarios, our results show that although within‐plant productivity improvement through tariff reduction has a sizable impact on aggregate productivity growth, the contribution of market share reallocation is less significant.