Firm Productivity Gains In A Period Of Slow Trade Liberalization: Evidence From Brazil

Existing literature recognizes the potential roles played by trade policy and firms’ exposure to international trade as potential determinants of productivity. A strand of the literature sheds light on the effects of trade policy changes on firm-level productivity. Another, studies the relationship between trading status (exporting goods or importing intermediates, but usually not both simultaneously) and firm-level TFP dynamics. However, analyses that integrate both strands are scarce. This paper studies the effects of import tariffs (on outputs and inputs) and firms’ trade status on productivity by assessing how the impact of trade policy on firm productivity depends on firms’ trade status. The empirics use data on the Brazilian industrial sectors (manufacturing and mining firms) during 2000-2008. After estimating firm level total factor productivity (TFP) using updated methodologies, the paper estimates the impacts of both trade policy and trade status on TFP dynamics. The results suggest that trade liberalization (through reductions in input or output import tariffs) increases TFP. However, the impact of trade policy on TFP spreads among all firms, what is consistent with the existence of spillovers from trading firms to other firms or with the notion that liberalization exerts competitive pressures on all firms, regardless of their initial exposure to international trade. In addition, even after controlling for import tariffs and fluctuations of the real effective exchange rate, there is still evidence of both learning-by-exporting and learning-by-importing effects.