Productivity Matters for Trade Policy: Theory and Evidence

Baybars Karacaovali

Fordham Economics Discussion Paper Series from Fordham University, Department of Economics

Abstract: There is a growing literature where authors investigate the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. I show, both theoretically and empirically, that this assumption is not valid in general and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. More productive sectors receive more protection and the sectors with a higher productivity gain are liberalized less even in the presence of a large unilateral liberalization shock that affects all sectors.

Keywords: Productivity; trade liberalization; endogeneity; political economy of trade policy; learning-by-doing (search for similar items in EconPapers)
JEL-codes: D24 F13 F14 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: PRODUCTIVITY MATTERS FOR TRADE POLICY: THEORY AND EVIDENCE (2011)
Working Paper: Productivity matters for trade policy: theory and evidence (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:frd:wpaper:dp2008-14

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