The Effects of Trade Liberalization on Productivity Growth in Brazil: Competition or Technology?

Abstract

This paper examines the effects of trade liberalization on productivity growth in Brazil. In contrast with the previous literature, we examine whether this relationship is driven by product or input market effects, by including both output and input tariffs in firm-level productivity regressions and allowing for imperfect competition in the product market. The results show that the reductions of input tariffs were more important to explain the productivity growth that took place during trade liberalization in Brazil. Lower input tariffs may allow firms to access foreign inputs with more advanced technology at lower prices. Moreover, we find that the reduction in input tariffs led to a rise in mark-ups, while the reduction in output tariffs did the opposite.