DP9952 The Impact of Trade Liberalization on Industrial Productivity

Author(s): Paul Segerstrom, Yoichi Sugita
Publication Date: April 2014
Keyword(s): firm heterogeneity, industrial productivity, trade liberalization
JEL(s): F12, F13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9952

This paper calls into question the currently most influential model of international trade. An empirical finding by Trefler (2004, AER) and others that industrial productivity increases more strongly in liberalized industries than in non-liberalized industries has been widely accepted as evidence for the Melitz (2003, Econometrica) model. We show that a multi-industry version of the Melitz model does not predict this relationship. Instead, it predicts the opposite relationship that industrial productivity increases more strongly in non-liberalized industries than in liberalized industries.