Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity.
This paper studies whether removing barriers to trade induces efficiency gains for producers. Like almost all empirical work which relies on a production function to recover productivity measures, I do not observe physical output at the firm level. Therefore, it is imperative to control for unobserv...
| Published in: | Econometrica Vol. 79; no. 5; pp. 1407 - 1452 |
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| Format: | Article |
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Wiley-Blackwell
September 2011
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| Online Access: | View this record in EBSCOhost |
| fields | @attributes: recordID: 1 pdfLink: plink: https://search.ebscohost.com/login.aspx?direct=true&db=ssf&AN=527631785&site=ehost-live header: @attributes: shortDbName: ssf uiTerm: 527631785 longDbName: Social Sciences Full Text (H.W. Wilson) uiTag: AN controlInfo: bkinfo: jinfo: jid: 00129682 ECN jtl: Econometrica issn: 00129682 maglogo: N pubinfo: dt: September 2011 vid: 79 iid: 5 pid: 480 pub: Wiley-Blackwell artinfo: ui: 527631785 10.3982/ECTA7617 ppf: 1407 ppct: 45 formats: tig: atl: Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity. aug: au: De Loecker, Jan su: Mathematical models Industrial productivity Mathematical models of marketing Product differentiation Free trade sug: subj: Mathematical models Industrial productivity Mathematical models of marketing Product differentiation Free trade ab: This paper studies whether removing barriers to trade induces efficiency gains for producers. Like almost all empirical work which relies on a production function to recover productivity measures, I do not observe physical output at the firm level. Therefore, it is imperative to control for unobserved prices and demand shocks. I develop an empirical model that combines a demand system with a production function to generate estimates of productivity. I rely on my framework to identify the productivity effects from reduced trade protection in the Belgian textile market. This trade liberalization provides me with observed demand shifters that are used to separate out the associated price, scale, and productivity effects. Using a matched plant-product level data set and detailed quota data, I find that correcting for unobserved prices leads to substantially lower productivity gains. More specifically, abolishing all quota protections increases firm-level productivity by only 2 percent as opposed to 8 percent when relying on standard measures of productivity. My results beg for a serious reevaluation of a long list of empirical studies that document productivity responses to major industry shocks and, in particular, to opening up to trade. My findings imply the need to study the impact of changes in the operating environment on productivity together with market power and prices in one integrated framework. The suggested method and identification strategy are quite general and can be applied whenever it is important to distinguish between revenue productivity and physical productivity. Reprinted by permission of the publisher. pubtype: Academic Journal doctype: Article src: R language: English refInfo: copyright: @attributes: flag: N holdings: @attributes: islocal: N |
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