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Trade liberalisation and industrial productivity: an assessment of developing country experiences
What does the empirical evidence say about the impact of liberalising trade on productivity?
Authors:
D. K. Das
Publisher:
Indian Council for Research on International Economic Relations , 2002
This paper reviews the literature on the impact of trade liberalisation on productivity growth for developing countries. In particular, it focusses on countries from three regions: Latin America, Africa and Asia. It encompasses both empirical evidence and theoretical arguments and econometric methodologies to assess the role of trade policy reforms in bringing about productivity improvements for the industrial sector.
The available empirical evidence on the impact of trade liberalisation on productivity growth of the industrial sectors is far from unambiguous:
- a review of studies for Latin American countries documents that the impact of trade liberalisation on productivity growth is mixed
- Mexico, Chile, Colombia and Bolivia show either a weak or negative impact of trade liberalisation
- Brazil and Peru confirm the presence of a positive association between trade liberalisation and productivity
- Brazil and Peru fall into the category of late reformers, the trade and macroeconomic policies of the late reformers prior to reform differs rather dramatically from those of the early reformers
- the African countries provide evidence of a positive link between trade liberalisation and productivity though for Cote d’Ivore and Malawi the paper finds the results are sensitive to the way productivity growth is measured
- the evidence for Asian countries points towards a significant role of trade liberalisation [Turkey, Indonesia, Thailand, Malaysia, India and Philippines], Taiwan and Nepal are the only two countries where the impact of trade liberalisation turns out to be negative whilst the evidence is mixed for Korea and Sri-Lanka.
The review of the studies based on countries from the three regions points towards three important issues encompassing the trade-productivity literature:
- What is the correct measure of trade liberalization?
- Does the impact hold at all levels of disaggregation?
- What is the specification of the relationship between trade liberalisation and productivity growth?
The author's assessment finds the following:
- The review of the trade liberalisation indicators confirms that it is not easy to combine different aspects of trade policy with a single measure
- In most developing countries, lowering of both tariff and non-tariff barrier holds the key to successful trade liberalisation
- Appropriate “measures” of trade orientation need to be constructed, reflecting both the above aspects of trade policy changes
- The inter-industry studies confirm that the trade-productivity is not specific to the level of disaggregation, as the paper observes both positive and negative impact at various levels of disaggregation.
- Many of the studies recognised the role of non-trade policies, particularly the possible influences of industrial structure in explaining productivity growth.
