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Trade and Market Selection: Evidence from Manufacturing Plants in Colombia

Marcela Eslava (), John Haltiwanger, Adriana Kugler and Maurice Kugler ()

Review of Economic Dynamics, 2013, vol. 16, issue 1, 135-158

Abstract: We examine the link between trade liberalization and aggregate productivity, with a focus on improved market selection resulting from a reduction in trade barriers and in the dispersion of these barriers across producers. Our analysis exploits tariff changes across sectors after the Colombian trade reform. An additional advantage of our analysis is that our TFP measure does not include demand and price effects. We find that reduced trade protection makes plant survival depend more closely on productivity. Using a dynamic simulation, we find that enhanced selection increases aggregate productivity substantially. Trade liberalization also increases productivity of incumbent plants and improves the allocation of activity. We find larger effects on allocative efficiency with our TFP measure than with a traditional measure including price effects. (Copyright: Elsevier)

Keywords: Trade liberalization; Productivity; Market selection (search for similar items in EconPapers)
JEL-codes: F43 L25 O47 (search for similar items in EconPapers)
Date: 2013
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