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Does trade liberalization boost quality upgrading?: evidence from Indonesian plant-product-level data

Kazunobu Hayakawa (), Toshiyuki Matsuura () and Takii Sadayuki

No 540, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: In this study, we examine the effects of tariff reduction on firms' quality upgrading by employing an Indonesian plant-product-level panel dataset matched with a plant-level dataset. We explore the effects of lower output and input tariffs separately, by focusing on the apparel industry. By estimating the Berry-type demand function, we derive product-quality indicators based on the Khandelwal (Review of Economic Studies, 2010) methodology, which enables us to isolate quality upgrading from changes in prices. Our findings are as follows. First, a reduction in output tariffs does not affect product quality upgrading. Second, a reduction in input tariffs boosts quality upgrading in general. In particular, this impact is greater for import firms, which is consistent with the fact that the source of the boost is the import of high-quality foreign inputs.

Keywords: Indonesia; International trade; Productivity; Tariff; Trade Liberalization; Input Trade; Quality Upgrading (search for similar items in EconPapers)
JEL-codes: F13 F14 O32 (search for similar items in EconPapers)
Date: 2015-10-01
New Economics Papers: this item is included in nep-int and nep-sea
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 540. 2015-10-01

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Journal Article: Does Trade Liberalization Boost Quality Upgrading? Evidence From Indonesian Plant-Product-Level Data (2017) Downloads
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