Firm productivity gains in a period of slow trade liberalization: evidence from Brazil

Existing literature recognizes the possible role of trade policy and firms’ exposure to international trade as determinants of productivity. A strand of the literature sheds light on the effects of trade policy changes on firm-level productivity. Another strand studies the relationship between firms’ trade status (exporting production or importing intermediates, but usually not both simultaneously) and firm-level TFP dynamics. However, the analyses that integrate both strands are scarce. This paper aims to disentangle the impact of input and output tariffs on firms’ productivity. Further, it analyses whether the impact of changes in tariffs is conditioned by the trade status of the firm (exporting and/or importing). At difference to most previous papers, we carry out our analysis for a large developing country in a period of slow trade liberalization. Thus, in the empirical part, we use data from firms belonging to Brazilian industrial sectors (manufacturing and mining) during 2000–2008. After estimating total factor productivity (TFP) at the firm level using updated methodologies, we estimate both the impact of trade policy and firms’ trade status on TFP dynamics. Our results suggest that trade liberalization (through reductions in input or output tariffs) increases TFP, being the effect associated to a reduction in input tariffs greater. Furthermore, the impact of trade policy on TFP spreads among all firms, which could be consistent with the existence of spillovers from trading firms to non-trading firms or with the notion that trade liberalization exerts competitive pressure on all firms, regardless of their initial exposure to international trade. Finally, we also find evidence of a positive effect of both the import and export statuses on TFP.