Accounting for the New Productivity Gains From Globalization

Paper Session

Saturday, Jan. 7, 2017 10:15 AM – 12:15 PM

Hyatt Regency Chicago, Toronto
Hosted By: American Economic Association
  • Chair: Nina Pavcnik, Dartmouth College and NBER

Accounting for the New Gains From Trade Liberalization

Chang-Tai Hsieh
,
University of Chicago and NBER
Nicholas Li
,
University of Toronto
Ralph Ossa
,
University of Chicago and NBER
Mu-Jeung Yang
,
University of Washington

Abstract

We measure the "new" gains from trade reaped by Canada as a result of the Canada-US Free Trade Agreement (CUSFTA). We think of the "new" gains from trade of a country as all welfare effects pertaining to changes in the set of firms serving that country as emphasized in the so-called "new" trade literature. To this end, we first develop an exact decomposition of the gains from trade which separates "traditional" and "new" gains. We then apply this decomposition using Canadian and US micro data and find that the "new" welfare effects of CUSFTA on Canada were negative.

Productivity, Misallocation and Trade

Antoine Berthou
,
Bank of France
Kalina Manova
,
University of Oxford and NBER
Charlotte Sandoz
,
Bank of France

Abstract

This paper investigates the relationship between trade, allocative efficiency and aggregate productivity, using unique data collected by the Competitiveness Research Network (CompNet) for 16 European countries and 20 manufacturing industries over the 1998-2011 period. The key feature of this data is that it allows decomposing the sector-level productivity of labor into an average productivity term and the contribution of the allocation of production factors across firms (allocative efficiency), which we relate to trade patterns measured at the country-sector level. In our empirical strategy, we use a two-stage least squares estimator to address the endogeneity problem between trade and productivity, where country-sector exports and imports are explained in a first-stage equation by the foreign demand and supply capacity of the trade partners. We find strong evidence that growth in foreign export demand, import competition and imported-input supply significantly increase aggregate labor productivity. While export demand operates by improving both the average productivity of firms as well as the allocative efficiency of production factors within each country and sector, the benefits from import penetration are mostly mediated by within-firm productivity upgrading. Finally, we further document how financial and labor market frictions can affect productivity growth through the efficiency of resource allocation across firms.

Reaasessing the Productivity Gains From Trade Liberalization

Jaebin Ahn
,
International Monetary Fund
Era Dabla-Norris
,
International Monetary Fund
Romain Duval
,
International Monetary Fund
Bingjie Hu
,
International Monetary Fund
Lamin Njie
,
International Monetary Fund

Abstract

This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country-industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non-tariff barriers. Finally, we find strong evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.

Selection and Market Reallocation: Productivity Gains From Multinational Production

Laura Alfaro
,
Harvard Business School and NBER
Maggie X. Chen
,
George Washington University

Abstract

Assessing productivity gains from multinational production has been a vital topic of economic research and policy debate. Positive productivity gains are often attributed to productivity spillovers; however, an alternative, much less emphasized channel is selection and market reallocation whereby competition leads to factor reallocation both within and between domestic firms and exits of the least productive firms. We investigate the roles of these different mechanisms in determining aggregate productivity gains using a unifying framework that explores the mechanisms' distinct predictions on the distributions of domestic firms: Within-firm productivity improvement shifts the productivity distribution rightward while selection and market reallocation shifts the revenue and employment distributions leftward and raises left truncations. Using a rich cross-country firm panel dataset, we find significant evidence of both mechanisms and effects of competition in product, technology and labor space. However, selection and market reallocation account for the majority of aggregate productivity gains, suggesting that ignoring this channel could lead to substantial bias in understanding the nature of productivity gains from multinational production.
Discussant(s)
Fernando Parro
,
Federal Reserve Board
Treb Allen
,
Northwestern University
Joel Rodrigue
,
Vanderbilt University
Leonardo Iacovone
,
World Bank
JEL Classifications
  • F1 - Trade
  • F2 - International Factor Movements and International Business