The better you are the stronger it makes you: Evidence on the asymmetric impact of liberalization

Leonardo Iacovone

Journal of Development Economics, 2012, vol. 99, issue 2, 474-485

Abstract: This paper shows how trade liberalization can have an asymmetric effect on heterogeneous firms. It develops a neo-Schumpeterian growth model predicting that the impact of liberalization on economic performance is positive “on average”, but more advanced firms benefit more. These predictions are tested using Mexican plant-level data confirming that, under NAFTA, the liberalization spurred productivity growth on average. However, the empirical analysis goes beyond estimating the average effect of liberalization and shows that more advanced firms benefited disproportionately more from the liberalization. Focusing on the mechanisms explaining these results, the paper shows that the results are not just driven by an increase in input usage and investments, but rather by innovative and managerial efforts as they are significantly stronger in those sectors where the scope for innovative activities is larger.

Keywords: Liberalization; NAFTA; Innovation; Heterogeneous firms; Neo-Schumpeterian models (search for similar items in EconPapers)
JEL-codes: D22 F14 F15 L22 L25 L60 O12 O14 O31 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

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Working Paper: The better you are the stronger it makes you: evidence on the asymmetric impact of liberalization (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:99:y:2012:i:2:p:474-485

DOI: 10.1016/j.jdeveco.2012.06.001

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