Trade Liberalization and Firm Productivity: The Case of India

February 1, 2004

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Petia Topalova. Trade Liberalization and Firm Productivity: The Case of India, (USA: International Monetary Fund, 2004) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics. The rapid and comprehensive tariff reductions-part of an IMF-supported adjustment program with India in 1991-allow us to establish a causal link between variations in inter-industry and intertemporal tariffs and consistently estimated firm productivity. Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies. Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity.

Subject: International trade, Production, Productivity, Tariffs, Taxes, Total factor productivity, Trade liberalization, Trade policy

Keywords: Asia and Pacific, Choice of variable inputs, Endogeneity of protection, Firm, Firm productivity, Firms in state, Indian manufacturing, Industry, Industry level, Measure of TFP, Middle East, Panel data, Productivity, Productivity measure, Productivity shock, Public sector firm, Raw material input, Tariffs, Total factor productivity, Trade liberalization, Trade policy, Trade protection, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/028
Stock No:

WPIEA0282004
ISBN:

9781451844696
ISSN:

1018-5941

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