The impact of input-trade liberalization on firms’ borrowings

Farida Abdelsalam () and Maria Bas ()
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Farida Abdelsalam: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Maria Bas: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: Trade liberalization creates incentives for firms to upgrade domestic and foreign technology, embodied in imported intermediate and capital goods, which play a central role in the economic growth of developing countries. Firms require access to financial resources to pay the fixed cost of technology upgrading and sourcing foreign inputs from abroad. This paper investigates the micro-economic effects of input-trade liberalization on firms' demand of external finance.Relying on firm-level data during India's trade liberalization episode in the early 1990s, we present novel evidence on the relationship between exogenous changes in input tariffs across industries over time and within-firm changes in borrowings. We demonstrate that firms sourcing inputs from abroad and producing in industries that have experienced greater input tariff reductions experienced a higher increase in borrowings. The 33 percentage points decrease in input tariffs over the period is associated with almost 13 percent increase in the borrowings of firms that source inputs from abroad. This empirical finding is robust to alternative specifications that control for alternative explanations.

Keywords: Input-trade liberalization; Firms' borrowings; Technology upgrading; Firm-level data (search for similar items in EconPapers)
Date: 2025-08-05
Note: View the original document on HAL open archive server: https://hal.science/hal-05424460v1
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Published in Journal of Comparative Economics, 2025, ⟨10.1016/j.jce.2025.07.008⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-05424460

DOI: 10.1016/j.jce.2025.07.008

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