The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization

Iacovone, Leonardo

关键词: ATTRITION;    AVERAGE PRODUCTIVITY;    BERTRAND COMPETITION;    BOOK VALUE;    CAPITAL EXPENDITURES;   

DOI  :  10.1596/1813-9450-4930
RP-ID  :  WPS4930

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper studies how liberalizationaffects productivity growth using micro-level plant data.While previous studies have already shown the existence of apositive relationship between competition and economicperformance, the novelty of this paper is that it analyzesnot only the average impact of liberalization, but also goes"beyond the average" and shows how theliberalization can affect dissimilar plants in a differentway. The author first develops a model which predicts that,while the impact of liberalization on productivity growth ispositive "on average", more advanced firms tend tobenefit more. In fact, liberalization generates twocompeting effects: on one side it spurs more innovativeefforts because of the increased entry threat by foreigncompetitors, on the other side, enhanced competitioncurtails expected profits and reduces the funds available tofinance innovative activities. The pro-competitive effect isweaker for less advanced firms as for them it is harder tocatch-up with the "technology frontier". Thesepredictions are then tested focusing on Mexican plantsduring the NAFTA liberalization. The results show that a 1percent reduction in tariffs spurred productivity growthbetween 4 and 8 percent on average. However, for backwardfirms this effect is much weaker if not close to zero,otherwise for more advanced ones this effect is strongerwith productivity growing between 11 and 13 percent.Consistent with the theoretical model the results arestronger in those sectors where the scope for innovativeactivities is more pronounced. These results areparticularly important for policy makers because theysuggest that while increasing competition may be good inspurring average productivity, it is also true that thiseffect does not hold for all type of firms, in particularmore backward firms may need some complementary supportpolicy to upgrade their capacities and keep up with the morecompetitive environment.