Does import competition drive productivity growth? Evidence from Hungary’s pre-accession import tariffs

Franklin Maduko ()
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Franklin Maduko: University of Exeter Business School

Review of World Economics (Weltwirtschaftliches Archiv), 2023, vol. 159, issue 2, No 6, 437-466

Abstract: Abstract This paper studies the effect of increased competition from imports on the productivity of firms. It proposes an empirical model that estimates productivity from sales revenue. The model addresses concerns associated with unobserved prices and demand conditions in revenue productivity. Unlike De Loecker (Econometrica 79(5):1407–1451, 2011), the model builds on recent evidence on the effect of exporting on firm-level prices by distinguishing between the export and domestic demand markets and integrating both in the supply function of firms. It applies this framework to study the effect that tariffs reduction on EU imports had on the efficiency of manufacturing firms in Hungary during the period 1996–2003, and finds that a 10-percentage point reduction in import tariffs on similar products manufactured by a firm raises the firm’s productivity by 1.40%. This is in contrast to 2.35% when revenue productivity is used. The proposed model provides a simple framework that improves productivity estimates from sales data.

Keywords: Import competition; Production function; Imperfect competition; Trade liberalization (search for similar items in EconPapers)
JEL-codes: D24 L11 L25 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10290-022-00472-3

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