Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms

In the paper

“recent papers in this literature like Johannes Van Biesebroeck (2005) and Jan De Loecker (2007) find increases in productivity after firms enter the export market in Ivory Coast and Slovenia, respectively.”

What the sources say

• Partly supported

  The Conclusions report that African exporters improved their productivity after entering foreign markets, and Section 2.2 lists Côte d’Ivoire among the nine countries studied. The finding is reported for the pooled African sample, however, not specifically for firms in Côte d’Ivoire. The Slovenia finding is attributed to De Loecker, not to this source. (LLM, conf=0.84)

  cites Johannes Van Biesebroeck (2005) sourceExperimental — accuracy not yet measured
• ?Not checked — no full text of the sourcecites Jan De Loecker (2007) source

In the paper

“Trade liberalization can increase productivity by inducing a better allocation of production factors or the adoption of more advanced technologies.”

What the sources say

• ?Not checked — no full text of the sourcecites Nina Pavcnik 2002 source
• Partly supported

  Section 9, “The Impact of Trade Liberalization” (page unavailable), says greater exposure to trade raises aggregate productivity by reallocating market shares toward more productive firms. The “Changes in Aggregate Productivity” section mentions innovation as a channel in other models, but our copy does not establish adoption of more advanced technologies as a productivity mechanism in this paper. (LLM, conf=0.86)

  cites Marc Melitz 2003 sourceExperimental — accuracy not yet measured
• ?Not checked — no full text of the sourcecites Andrew B. Bernard et al. 2003 source

In the paper

“The first studies by Sofronis K. Clerides, Saul Lach, and Tybout (1998) for Colombia, Mexico, and Morocco, and Bernard and Jensen (1999) for the United States find that exporters have higher productivity than nonexporters, but this is because ex ante more productive firms become exporters, while there are no effects of exporting on productivity.”

What the sources say

• ?Not checked — no full text of the sourcecites Sofronis K. Clerides, Saul Lach, and Tybout (1998) source
• Partly supported

  Section 4.1 reports that future exporters had higher labor productivity before they began exporting, supporting the selection explanation. Section 6 concludes that exporting shows little evidence of boosting productivity, but that is more cautious than the claim that exporting has no effect on productivity. (LLM, conf=0.88)

  cites Bernard and Jensen (1999) sourceExperimental — accuracy not yet measured

In the paper

“trade integration reallocates market shares towards exporters, the most productive firms, increasing aggregate productivity.”

What the sources say

• ?Not checked — no full text of the sourcecites Nina Pavcnik 2002 source
• Supported

  The Introduction says trade-related selection reallocates market shares from less productive firms to more productive firms that export, contributing to industry productivity growth. Section 9, “The Impact of Trade Liberalization,” likewise reports that market shares shift toward more efficient exporting firms and generate an aggregate productivity gain. (LLM, conf=0.94)

  cites Marc Melitz 2003 source
• ?Not checked — no full text of the sourcecites Andrew B. Bernard et al. 2003 source

In the paper

“The empirical methodology implemented in this paper follows the literature measuring the effects of trade liberalization on economic outcomes through changes in tariffs.10”

What the sources say

• ?Could not verify

  The Introduction describes a theoretical model of responses to falling trade costs, and the passage under “Decline From” mentions historical declines in tariffs and transportation costs. Neither passage describes an empirical methodology that measures liberalization effects through tariff changes; searches for tariff changes and empirical methodology found no such account in our copy. (LLM, conf=0.76)

  cites [10] 10. Bernard, Andrew B., Stephen Redding, and Peter Schott. 2007. "Comparative Advantage and Hetero- geneous Firms." Review of Economic Studies, 74(1): 31-66. sourceExperimental — accuracy not yet measured

In the paper

“between 1992 and 1996 exports to Brazil quadrupled, while exports to the rest of the world increased only 60 percent.”

In the paper

“In particular, new exporters were not more technology intensive than nonexporters before liberalization, but upgrade technology faster as they enter the export market during the liberalization period.”

In the paper

“I find that the reduction in Brazil's tariffs had a stronger effect on both entry in the export market and technology upgrading in the third quartile of the firm size distribution.”

In the paper

“The coefficient in the change in Brazil's tariffs ( β τ x ) is negative (-0.421) and significant (t = -5.01).”

In the paper

“As Argentina's unilateral trade liberalization occurred before the period under study, between 1992 and 1996 Argentina's average import tariffs with respect to the rest of the world increased slightly (1 percentage point).”

In the paper

“Instead, the binary measures of technology that I use to construct the innovation indexes are available for a larger subsample of firms (1,310 firms) that is representative in terms of size, as around 25 percent of firms in the subsample belong to each size quartile.”

In the paper

“With the inclusion of two-digit ISIC industry dummies the correlation between capital intensity and tariffs falls to -0.06, although the correlation between tariffs and skill intensity increases to 0.06.”

In the paper

“In contrast, after liberalization these new exporters become more technology intensive than firms that do not export, increasing their spending on technology per worker 0.37 log points faster between 1992 and 1996.”

In the paper

“The coefficients in the regressions including all controls (columns 5 and 8) are -0.466(t = -4.80)and -0.533 (t = -3.78)and imply that the average reduction in Brazil's tariffs (24 percentage points) increases the probability of entry in the export market by 11 to 12 percentage points.”

In the paper

“This sample is not representative for the smallest firms, while the binary measures of technology contained in the survey are available for a representative sample.”

In the paper

“Instead, tariffs are negatively correlated with a measure of capital intensity (-0.21), suggesting that Brazil protected labor-intensive industries.”

In the paper

“Similarly, the changes in Argentina's input tariffs with respect to the world were smaller than the output tariffs, ranging from -3 to 6 percentage points.”

In the paper

“Column 4 presents estimation of the equation in levels including lagged export status as a control.The point estimates of β τ x r are smaller, but the same pattern is observed: the estimate of β τ x r is largest in the third quartile and precisely estimated ( β τ x 3 = -0.541,t = -3.49).”

In the paper

“The first alternative gives very similar results, although standard errors are slightly bigger.”

In the paper

“As a result, they display tariff rates above 30 percentage points for some unskilled, labor-intensive industries protected under the import substitution policy like toys, textiles, and rubber and also for skill-intensive industries that were protected under the new policy like domestic appliances, office accounting and computing, and the car industry.”

In the paper

“The estimated coefficient is not affected by the inclusion of firm-level controls (column 2) nor by the change in Argentina's output and input tariffs with respect to the world (columns 3 to 5).”

In the paper

“As m.f.n.tariffs in Argentina were already low before MERCOSUR was launched, the baseline for the reduction in Argentina's tariffs for imports from Brazil was only 13 percentage points on average (Table 1).”

In the paper

“The coefficients are negative but not always statistically significant.”

In the paper

“The baseline m.f.n.rates for Argentina's input tariff reductions with respect to Brazil were smaller than the output tariffs reported above, with an average level of 11 percentage points in 1992.”

In the paper

“Table E.1 in online Appendix E reports estimates of equation ( 16), replacing the growth in spending on technology by the growth in spending on technology per worker as the dependent variable.The estimates of β τ x are very similar to the ones reported in Table 5.”

In the paper

“These are on average 24 percentage points, slightly lower than 1991 tariffs, but reflect a similar variation across industries, as their correlation is 0.97.”

In the paper

“Panel B of Table 3 reports estimation of equation (13) where the estimated coefficient goes from -0.291 (t = 4.09) in the baseline specification in column 1 to -0.490 (t = 3.40) in column 9 where all controls are included.”

In the paper

“The coefficient on the change in Brazil's tariffs is negative and significant for all and each type of innovation.”

In the paper

“In addition, when these firm characteristics are included in the regressions the coefficient does not change (see panel C, columns 1 and 2); thus sample selection does not seem to play an important role.”

In the paper

“The empirical evidence suggests that the reduction in Argentina's tariffs with respect to Brazil reduced domestic sales, while the reduction in Brazil's tariffs did not have a significant effect.”

In the paper

“The estimated coefficient in column 2 implies that the average reduction in Brazil's tariffs induces an increase of 0.07 in the innovation index, which is 19 percent of the average innovation index (0.38).”

In the paper

“The point estimate is robust to the inclusion of controls for changes in Argentina's input tariffs with respect to Brazil and industry characteristics (columns 2 and 4), falls to 1.022 (t = 1.89) when changes in Brazil's tariffs are included in the regression (column 5), and becomes insignificant when in addition controls for industry or firm characteristics are included (columns 6 and 7).”

In the paper

“Unlike the change in Argentina's tariffs with respect to Brazil, changes in Argentina's output and input tariffs with respect to the world did not have a statistically significant effect on domestic sales.”

In the paper

“The point estimate is double the size of the estimated average effect for all firms reported in Table 5 and more than double the estimated coefficient for the other three quartiles of the size distribution.”

In the paper

“To explore this issue further, I split the sample of firms in two on the basis of initial export status and show that the reduction in Brazil's tariffs induced technology upgrading in both subsamples.”

In the paper

“The analysis of export sales at the firm level did not produce consistent results, possibly because the data combines all destinations.”

In the paper

“The results on the innovation index parallel the findings with the ST measure: the reduction in tariffs induces a statistically significant increase in innovation only in the third quartile of the size distribution, where the point estimate of β τ x r is -0.359 (t = 2.70), as reported in column 4.”

In the paper

“Panel B reports IV estimates, where both the magnitude of the coefficient increases and standard errors fall, suggesting that measurement error in tariffs might produce attenuation bias in the OLS results.”

In the paper

“The coefficient is similar to the one estimated for the full sample and significant in almost all specifications.”

In the paper

“The estimated coefficient of the effect of Brazil's tariffs on ST and innovation in the third quartile of the firm size distribution is not affected by the inclusion of these controls and is always significant at the 1 percent confidence level.”

In the paper

“The coefficients are negative but not statistically significant; thus it is possible that some firms in the first, second, and fourth quartiles were induced to upgrade technology by the reduction in Brazil's tariffs.”

In the paper

“More importantly, changes in technology not only affect productivity but can have implications for factor markets if new technologies use skilled labor more intensively.”

In the paper

“when variable trade costs (τ) fall, and not all firms export ( τ σ-1 f x > f ): (i) The fraction of surviving firms that export, p x = ( φ x / φ * ) -k , and the fraction of surviving of firms that use technology h, p h = ( φ h / φ * ) -k , increase.”

In the paper

“the result that old exporters upgrade technology when trade costs fall obtains only when the costs of technology adoption are high (relative to fixed exporting costs), which is more likely to be the case in developing countries.”

In the paper

“Indeed, several studies have documented increases in the relative demand for skill in developing countries during the trade liberalization period, 9 leaving the open question of whether skill-biased technological change might have been an endogenous response to trade liberalization.”

What the sources say

• ?Not checked — no full text of the sourcecites [9] 9. Bernard, Andrew B., and J. Bradford Jensen. 2004. "Why Some Firms Export." Review of Economics and Statistics, 86(2): 561-69. source

In the paper

“it was inspired by the insight in Stephen R. Yeaple (2005) that a reduction in trade costs increases the share of firms that export and use the most advanced technology.”

What the sources say

• ?Not checked — no full text of the sourcecites Stephen R. Yeaple (2005) source

In the paper

“This is because the benefit of adoption is proportional to revenues, while its cost is fixed.”

In the paper

“This paper differs from this literature in that the outcome of interest is technology instead of productivity, and in that it analyzes the effect of bilateral trade liberalization on technology adoption, not the effect of exporting.”

In the paper

“The opposite finding, even in the context of a trade reform, can't be fully attributed to it, especially in the context of simultaneous implementation of other market-oriented reforms that might have made it possible for some firms to invest in productivity improvements and thus enter the export market.”

In the paper

“In online Appendix A, I show that in this equilibrium firms sort into four different groups: the least productive firms (φ < φ * ) exit, the low productivity firms ( φ * < φ < φ x ) serve only the domestic market and use technology l, the medium productivity firms ( φ x < φ < φ h ) still use technology l but also export, and the most productive firms ( φ h < φ) both export and use technology h.”

In the paper

“Still, a main potential problem is that other reforms carried out in the same period could have had heterogeneous effects on industries with different characteristics.”

In the paper

“The first departure from previous literature, namely the focus on investment in technology as the outcome of interest, has the advantage of isolating a particular mechanism through which firm productivity can improve.”

In the paper

“In this setup, a bilateral reduction in tariffs increases export revenues more than it decreases domestic revenues, inducing more firms to adopt the new technology.”

In the paper

“Brazil's tariffs provide a good source of arguably exogenous variation, as they fell from an average of 29 percent in 1991 to zero in 1995, and varied extensively across industries.”

In the paper

“Their finding that the reduction in US tariffs induced productivity increases in only the least productive new entrants in the export market for the case of Canada contrasts with the findings for Argentina where the reduction in Brazil's tariffs induced technology upgrading mostly in the third quartile of the firm-size distribution and not only in new but also in old exporters.”

What the sources say

• ?Not checked — no full text of the sourcecites Alla Lileeva and Trefler (2010) source

In the paper

“Instead, the result is due to the asymmetric effect of trade liberalization in models of heterogeneous firms with fixed exporting costs: while firms serving only the domestic market lose revenues, exporters see their revenues increase.”

In the paper

“I show that a reduction in trade costs increases export revenues, inducing more firms to enter the export market and upgrade technology.”

In the paper

“Indeed, both entry in the export market and technology upgrading could be caused by other economic reforms undertaken in the same period if these had heterogeneous effects on firms with different characteristics.”

In the paper

“A potential problem in the estimation of equation (13) restricted to nonexporters in 1992 is sample selection.”

In the paper

“The patterns in the data described above show that there is a coincidence between entry in the export market and technology upgrading but can't establish whether it is expanded export opportunities that cause technology adoption, vice versa, or whether both are caused by a third factor.”

In the paper

“In the model, underlying productivity differences produce a sorting of firms into three groups: the low productivity firms serve only the domestic market and use the low technology, the medium productivity firms still use the low technology but also export, and the most productive firms both export and use the high technology.”

In the paper

“As changes in tariffs are predetermined, they are unlikely to be driven by political pressures arising from the effects of liberalization in Brazil or Argentina, or by contemporaneous shocks to industrial performance.”

In the paper

“Berlinski et al. (2006) note that the tariff structure in 1988 was based on the tariffs implemented in 1957 under the import substitution policy.”

What the sources say

• ?Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  cites Berlinski et al. (2006)

In the paper

“The sample is representative of firms owning establishments with more than ten employees and is based on 1993 census data.”

In the paper

“The new tariffs would vary between 0 and 20 percent, except for a few goods facing 30-35 percent tariff rates.24”

What the sources say

• ?Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  cites Berlinski et al. (2006)

In the paper

“A potential problem of the specification in equation ( 12) is that if there are sunk exporting costs, current export status might depend on lagged export status, 36 which in turn is likely to be negatively correlated with the initial level of Brazil's tariffs.”

In the paper

“Instead, after a new government took power in march 1990 NTBs were eliminated and tariffs were reduced gradually according to a timetable ending in January 1994.”

What the sources say

• ?Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  cites Berlinski et al. (2006)

In the paper

“The problem with this estimation strategy is that it would induce serial correlation in the error terms, as the variation across time in Brazil's tariffs is fully determined by their level in 1992.As a result, the standard error of the estimated coefficients would understate their standard deviation, as noted by Marianne Bertrand, Esther Duflo, and Sendhil Mullainathan (2004).”

What the sources say

• ?Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  cites Marianne Bertrand, Esther Duflo, and Sendhil Mullainathan (2004)

In the paper

“In this case, first differencing eliminates time-invariant plant and sector heterogeneity:”

In the paper

“Still, the fact that within each sector exporters and new exporters are upgrading technology faster than other firms could reflect other shocks that affect middle and high productivity firms differentially.”

In the paper

“The model predicts that in sectors where tariffs are higher the exporting cutoff is higher; thus it is likely that in sectors with high initial tariffs nonexporters are more productive than in sectors with low initial tariffs, creating a positive correlation between Brazil's tariffs in 1992 and unobserved productivity, thus biasing downwards the coefficient on the change in tariffs.”

In the paper

“This is not inconsistent with the model, as size is not a perfect measure of productivity, and the exporting cutoffs might differ across industries.”

In the paper

“In particular, the model predicts that the reduction in tariffs would induce firms in the middle range of the productivity distribution to enter the export market but should not affect firms in the lower and upper ranges of the distribution.”

In the paper

“possibly because these are correlated with Brazil's tariffs but had an effect of the opposite sign in technology adoption, although it is not statistically significant.”

In the paper

“Second, the 1991 m.f.n.import tariffs of Brazil are the same for Argentina and the rest of the world and are therefore unlikely to be targeted to industry characteristics particular to Argentina, whose share of Brazil's trade was only 7.7 percent.”

In the paper

“They are also less stable, possibly due to the omission of unobserved time-invariant industry characteristics.”

In the paper

“Still, estimation of equation ( 13) is useful because first-difference and lagged-dependent variable estimates have a bracketing property: if the first-difference specification in (12) is correct, then (13) will tend to underestimate the absolute value of β τ x , while if the lagged-dependent variable specification in (13) is correct, then (12) will tend to overestimate the absolute value β τ x .”

In the paper

“Still, if industries with different initial characteristics are on different trends, Brazil's tariffs could be capturing some omitted industry-level time-varying variable.”

In the paper

“An additional issue concerning the use of Brazil's tariffs to measure the effect of expanded export opportunities on entry in the export market and technology upgrading is that they might be correlated with changes in Argentina's tariffs during this period, as long as the structure of protection was similar between the two countries in 1992.”

In the paper

“As discussed above, Brazil's trade policy is correlated with some industry characteristics, and omitting them could be an important source of bias.”

In the paper

“In this setting a reduction in variable trade costs increases exporting revenues, inducing firms in the middle range of the productivity distribution to enter the export market and upgrade technology.”

In the paper

“They argue that the first reforms implemented in 1988-89 did not have significant effects on the degree of protection of the domestic industry, as NTBs, which were the main instrument of protection, were not modified.”

What the sources say

• ?Not matched

  Couldn’t be matched to a paper in Crossref, so it can’t be checked.

  cites Berlinski et al. (2006)

In the paper

“It is possible that this is due to the reduction in Argentina's output tariffs having an effect on innovation of the opposite sign, although the estimate is only marginally significant (column 3).”

In the paper

“This linearization does not respect functional form, thus estimation attempts only to recover the signs of the partial derivative of interest and to assess the economic significance of the estimated coefficients.”

In the paper

“First, the tariff reductions were programmed in 1991 and reach a level of zero for all industries 32 in 1995.”

In the paper

“in their baseline model the effect of a bigger market size is counteracted by the increased competition with technologies embedded in imports, so that there is no effect of lower barriers to trade on innovation.”

What the sources say

• ?Not checked — no full text of the sourcecites Jonathan Eaton and Samuel Kortum (2001) source

In the paper

“This implies that firms that were already exporting in 1992 are induced to upgrade technology by the reduction in Brazil's tariffs, which is consistent with technology upgrading being driven by the increase in revenues.”

In the paper

“As mentioned above, this is not inconsistent with the model, as size is not a perfect measure of productivity, and the technology adoption cutoffs might differ across industries.”

In the paper

“The evidence is consistent with falling trading partner's tariffs increasing revenues for exporters and making adoption of new technologies profitable for more firms.”

In the paper

“Standard errors are clustered at the 4-digit ISIC industry level.”

In the paper

“This might be due to the fact that the changes in Argentina's tariffs with respect to the world were smaller, as unilateral trade liberalization took place before 1992.”

In the paper

“The IV estimates use Brazil's tariffs in 1991 to instrument for Brazil's tariffs in 1992 in an attempt to correct for measurement error in Brazil's tariffs.”

In the paper

“InYeaple (2005) firms are ex ante homogeneous, but in equilibrium all firms are indifferent between entering the export market and adopting the new technology or serving only the domestic market and using the old technology.”

What the sources say

• ?Not checked — no full text of the sourcecites Yeaple (2005) source

In the paper

“I use initial firm size measured as employment relative to the four-digit industry mean in 1992 as a proxy for productivity, as the survey does not provide for measures of value added nor a long enough series of investment that would permit calculation of productivity as a residual of an estimated production function.”

In the paper

“The mechanism generating quality upgrading in his model is the higher valuation for high quality goods of consumers in developed countries, the United States in this case.”

What the sources say

• ?Not checked — no full text of the sourcecites Verhoogen (2008) source

In the paper

“As measures of technology I use spending in technology, spending on technology per worker, and spending on technology over sales; all produce similar results.”

In the paper

“The evidence is thus not conclusive but suggestive that the reduction in Argentina's tariffs with respect to Brazil reduced domestic sales.”

In the paper

“The finding that firms in the top quartile of the size distribution did not increase ST in response to the reduction in tariffs suggests that they were above the threshold before, or regardless of, liberalization.”

In the paper

“The coefficients are negative but not statistically significant; thus it is possible that some firms in the first, second, and fourth quartiles were induced to upgrade technology by the reduction in Brazil's tariffs.”

In the paper

“In addition, the survey contains a series of questions asking whether the firm performed a certain category of innovation or improvement in products or production process during the period 1992-1996 that I use to perform robustness checks.”

In the paper

“A similar approach was followed by Eric A.Verhoogen (2008) who develops a model where increased trade with more developed countries increases production of high quality goods and tests it in the context of Mexico's 1994 devaluation.”

What the sources say

• ?Not checked — no full text of the sourcecites Verhoogen (2008) source