Trade liberalization and domestic suppliers: evidence from Chile

Andrea Linarello

No 994, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: I examine the effect of reducing export tariffs on the productivity of domestic suppliers of exporting firms. Using a panel of Chilean firms during a period of trade liberalization with the European Union, the United States, and the Republic of Korea, I show that the average reduction in the export tariff of downstream industries (1.1 percentage points) increases the productivity of intermediate input suppliers by 1.5 percent. The increase in productivity among domestic suppliers accounts for 22.5 percent of aggregate productivity gains. I find that tariff cuts induce firms to acquire new machinery and pay higher wages to skilled workers. These findings are consistent with a simple model in which lower export tariffs increase the sales of exporting firms and increase the derived demand for intermediates through input-output linkages.

Keywords: productivity, trade liberalization, exports; input-output linkages (search for similar items in EconPapers)
JEL-codes: D21 F12 L60 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-eff and nep-int
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