Tariffs, productivity, and resource misallocation

Michael Kilumelume, Bruno Morando, Carol Newman and John Rand

No wp-2021-174, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: An often-neglected potential negative consequence of tariffs is the impact they may have on the misallocation of factor inputs. Trade protection can provide space for domestic firms to increase prices and mark-ups, allowing low-productivity firms to survive, thereby leading to a sub-optimal allocation of resources. This paper explores the impact of tariffs on the allocation of capital using administrative data from South Africa. We find that tariffs are highly correlated with capital misallocation, leading to aggregate productivity losses of 5-10 per cent.

Keywords: Tariffs; Productivity; Misallocation; South Africa (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-eff and nep-int
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