Trade Liberalization, Market Share Reallocation, and Aggregate Productivity: The Case of the Indonesian Manufacturing Industry

Abstract

We investigate how trade liberalization affects aggregate productivity growth, focusing on market reallocation as well as within‐firm productivity improvement. To this end, using Indonesian plant‐level data from 1993 to 2005, we estimate the plant‐level impact of trade liberalization focusing on productivity, output, and the probability to exit. Then, using the simple dynamic simulation method, we calculate the likely impact if tariff rates remain constant in the initial period. Comparing the actual and counterfactual scenarios, our results show that although within‐plant productivity improvement through tariff reduction has a sizable impact on aggregate productivity growth, the contribution of market share reallocation is less significant.

Testing for asymmetric adjustment in weekly Brazilian inflation

“…That was the case of Brazil in 2002, when the economy faced a negative swing of US$ 30 billion in capital fl ows (6% of its gross domestic product -GDP), leading to a nominal depreciation of 50% in the exchange rate and higher domestic prices. In contrast, because product or process innovations are the main drivers of the productivity factor enhancement in the manufacturing industry, the trade liberalization in Brazil in the early 1990s can be interpreted as a signifi cant source of a (defl ationary) positive supply shock (Lopes, 1985;Franco, 1998;Hayakawa and Matsuura, 2017). If a defl ationary supply shock can cause a permanent reduction in the infl ation level, it contributes to the operation of the ITR by the Central Bank, mitigating the infl ationary process.…”