EconPapers    
Economics at your fingertips  
 

Trade liberalization, agency problem and aggregate productivity

Cheng Chen

European Economic Review, 2019, vol. 111, issue C, 421-442

Abstract: Evidence shows that trade liberalization mitigates the agency problem inside firms that have production inefficiencies and incentivizes these firms to improve management quality. In order to strengthen our understanding of this phenomenon, I propose an industry equilibrium trade model with heterogeneous firms. When an economy opens up to trade, managers of the least productive surviving firms are incentivized to exert more effort, although they face shrinking market size in the open economy. This leads to improved productivity within these firms. I then show that managerial incentives have a non-monotonic impact on the aggregate productivity gains from an episode of trade liberalization. Finally, I calibrate the model using plant-level data from Colombia, and find that the interaction between managerial incentives and trade liberalization has a quantitatively sizable effect on the productivity gains from trade.

Keywords: Trade liberalization; Firm productivity; Separation of ownership and control; Managerial incentives (search for similar items in EconPapers)
JEL-codes: L22 L23 D23 F12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292118301867
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:111:y:2019:i:c:p:421-442

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-05-10
Handle: RePEc:eee:eecrev:v:111:y:2019:i:c:p:421-442