Trade , Technology , and Productivity : A Study of Brazilian Manufacturers , 1986

Brazil’s trade liberalization between 1990 and 1993, and its partial reversal in 1995, are used to study how reduced inward trade barriers affect productivity. The production function of Brazilian manufacturers is estimated at the ISIC3 two-digit level under various alternatives, including an extension of Olley and Pakes’ (1996) procedure. Firm-level productivity is inferred and then related to trade. Findings suggest that (1) foreign competition pressures firms to raise productivity markedly, whereas (2) the use of foreign inputs plays a minor role for productivity change. (3) The shutdown probability of inefficient firms rises with competition from abroad, thus contributing positively to aggregate productivity. Counterfactual simulations indicate that the competitive push (1) is an important source of immediate productivity change, while the elimination of inefficient firms (3) unfolds its impact slowly. JEL F14, F43 ∗I thank my advisors Maurice Obstfeld, Daniel McFadden, David Romer and Pranab Bardhan for their guidance. Andrew Bernard, Gordon Hanson, Ann Harrison, Pinar Karaca, Marc Melitz, Aviv Nevo, Paul Ruud, Jim Powell, Tiago Ribeiro, Tom Rothenberg and seminar participants at Bocconi, Dartmouth, Humboldt U, the IDB, IIES Stockholm, IPEA Braśılia, Johns Hopkins U, Pompeu Fabra, PUC-Rio, U Essex, U Michigan, U de Montréal, UC Berkeley, UCL, UCSD, and the World Bank made important suggestions. Adriana Schor shared her knowledge of Brazilian accounting law to infer the capital stock series. I thank the team at IBGE for data access. Financial support from the Social Science Research Council and the American Council of Learned Societies with an International Predissertation Fellowship (funds from the Ford Foundation), financial support from the World Bank, and mini-grants from IBER and CIDER at UC Berkeley are gratefully acknowledged. ¶[email protected] (www.econ.ucsd.edu/muendler)