Trade Liberalization and Firm Productivity [electronic resource] : The Case of India / Petia Topalova.
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TextSeries: IMF Working Papers; Working Paper ; No. 04/28Publication details: Washington, D.C. : International Monetary Fund, 2004Description: 1 online resource (38 p.)ISBN: 1451844697 :ISSN: 1018-5941Subject(s): Country and Industry Studies of Trade | Endogeneity of Protection | Firm Productivity | Indian Manufacturing | Industry Studies: Manufacturing | Tariff Barriers | IndiaAdditional physical formats: Print Version:: Trade Liberalization and Firm Productivity : The Case of IndiaOnline resources: IMF e-Library | IMF Book Store Abstract: Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics. The rapid and comprehensive tariff reductions-part of an IMF-supported adjustment program with India in 1991-allow us to establish a causal link between variations in inter-industry and intertemporal tariffs and consistently estimated firm productivity. Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies. Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity.
Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics. The rapid and comprehensive tariff reductions-part of an IMF-supported adjustment program with India in 1991-allow us to establish a causal link between variations in inter-industry and intertemporal tariffs and consistently estimated firm productivity. Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies. Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity.
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