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The Impact of Input and Output Tariffs on Firms' Productivity: Theory and Evidence
Author(s) -
Luong Tuan Anh
Publication year - 2011
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2011.00988.x
Subject(s) - economics , productivity , liberalization , free trade , elasticity (physics) , elasticity of substitution , international economics , econometrics , macroeconomics , production (economics) , materials science , market economy , composite material
This paper studies the impact of trade liberalization on productivity. It shows that when intermediate inputs are not highly differentiated, lowering input tariffs leads to a rise in within‐firm productivity and wages, and lowering output tariffs has the opposite effect. When intermediate inputs are highly differentiated, the conclusions reverse. These predictions are supported by the data, given by the industrial survey from INEGI (Mexico's Insitituto Nacional de Estadistica Geografia e Informacion) in the period 1984–90. The paper yields estimates for the elasticity of substitution among intermediate inputs, which are useful in determining the direction of the impact of trade liberalization. These estimates can be used to assess the gains from trade liberalization.