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Trade liberalization and domestic suppliers: evidence from Chile

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  • Andrea Linarello

    (Bank of Italy)

Abstract

I examine the effect of reducing export tariffs on the productivity of domestic suppliers of exporting firms. Using a panel of Chilean firms during a period of trade liberalization with the European Union, the United States, and the Republic of Korea, I show that the average reduction in the export tariff of downstream industries (1.1 percentage points) increases the productivity of intermediate input suppliers by 1.5 percent. The increase in productivity among domestic suppliers accounts for 22.5 percent of aggregate productivity gains. I find that tariff cuts induce firms to acquire new machinery and pay higher wages to skilled workers. These findings are consistent with a simple model in which lower export tariffs increase the sales of exporting firms and increase the derived demand for intermediates through input-output linkages.

Suggested Citation

  • Andrea Linarello, 2014. "Trade liberalization and domestic suppliers: evidence from Chile," Temi di discussione (Economic working papers) 994, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_994_14
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    productivity; trade liberalization; exports; input-output linkages;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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