The Elusive Productivity Effect of Trade Liberalization in the Manufacturing Industries of Emerging Economies

Using a model that admits variable returns and imperfect competition, we investigate the impact on total factor productivity of trade liberalization in six emerging economies. Regressions based on panel data for twenty-eight three-digit manufacturing industries show that productivity growth is insensitive to tariff reduction. These results are at variance with country-specific studies that, using firm-level data, generally find a positive association between liberalization and productivity growth. While aggregation effects may matter, our results can also be explained as follows: significant productivity gains by latecomers via technological assimilation do take time and require appropriate sequencing of reforms of trade and industrial policies.