Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants

NBER Working Paper No. 7852^*
Issued in August 2000
NBER Program(s): ITI PR

---- Abstract -----

This paper empirically investigates the effects of trade liberalization on plant productivity in the case of Chile. Chile presents an interesting setting to study this relationship since it underwent a massive trade liberalization that significantly exposed its plants to competition from abroad during the late 1970s and early 1980s. Methodologically, I approach this question in two steps. In the first step, I estimate a production function to obtain a measure of plant productivity. I estimate the production function semiparametrically to correct for the presence of selection and simultaneity biases in the estimates of the input coefficients required to construct a productivity measure. I explicitly incorporate plant exit in the estimation to correct for the selection problem induced by liquidated plants. These methodological aspects are important in obtaining a reliable plant-level productivity measure based on consistent estimates of the input coefficients. In the second step, I identify the impact of trade liberalization on plants' productivity in a regression framework allowing variation in productivity over time and across traded- and nontraded-goods sectors. Using plant-level panel data on Chilean manufacturers, I find evidence of within plant productivity improvements that can be attributed to a liberalized trade policy, especially for the plants in the import-competing sector. In many cases, aggregate productivity improvements stem from the reshuffling of resources and output from less to more efficient producers.

^*Published: Pavcnik, Nina. "Trade Liberalization, Exit, And Productivity Improvements: Evidence From Chilean Plants," Review of Economic Studies, 2002, v69(1,238,Jan), 245-276.

Would you like an annual subscription to NBER Working Papers? Click here for more information.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
Information for subscribers and others expecting no-cost downloads

Machine-readable bibliographic record - MARC, RIS, BibTeX