The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization
This paper studies how liberalization affects productivity growth using micro-level plant data. While previous studies have already shown the existence of a positive relationship between competition and economic performance, the novelty of this pap...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090513134707 http://hdl.handle.net/10986/4124 |
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okr-10986-4124 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ATTRITION AVERAGE PRODUCTIVITY BERTRAND COMPETITION BOOK VALUE CAPITAL EXPENDITURES COMMODITIES COMPARATIVE ADVANTAGE COMPETITIVE ENVIRONMENT COMPETITIVENESS COMPETITORS CONFIDENTIALITY CONSUMER PRICE INDEX CONSUMERS DEFLATION DEFLATORS DEVALUATION DEVELOPMENT ECONOMICS DISCUSSION DISCUSSIONS ECONOMETRIC ANALYSIS ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC PROGRESS ECONOMIC RESEARCH ECONOMIES OF SCALE ELASTICITY ELASTICITY OF DEMAND ELASTICITY OF SUBSTITUTION ELECTRICITY EMPLOYMENT EQUIPMENT EXPORT MARKET EXPORTS FINANCIAL CONSTRAINTS FINANCIAL SUPPORT FIXED COSTS FOREIGN COMPETITION FOREIGN DIRECT INVESTMENT FREE TRADE GLOBAL ECONOMY GLOBALIZATION GROWTH MODELS HISTORY OF ECONOMIC THOUGHT HUMAN CAPITAL IDEA IDEAS IMPERFECT COMPETITION IMPORT BARRIERS INCUMBENT INDUSTRY PRODUCTIVITY INEFFICIENCY INNOVATION INTEGRATION INTERNATIONAL COMPETITION INTERNATIONAL TRADE INTUITION INVENTORY LABOR PRODUCTIVITY LABOUR LABOUR PRODUCTIVITY LDCS LEARNING LESS DEVELOPED COUNTRIES MACROECONOMIC SHOCKS MANAGERIAL SKILLS MANUFACTURING MANUFACTURING INDUSTRIES MARGINAL COST MARGINAL PRODUCT MARKET ACCESS MARKET SHARE MARKET SHARES MICROECONOMICS MISSING VALUES MONOPOLY NETWORKS ORGANIZATIONAL CAPITAL PATENTS POLITICAL ECONOMY POLITICAL ECONOMY OF TARIFFS POLITICAL ECONOMY OF TRADE POLITICAL SCIENCE PRODUCT INNOVATION PRODUCTIVITIES PRODUCTIVITY PRODUCTIVITY GROWTH PROFIT MAXIMIZATION R&D RESULT RESULTS SOURCES OF INFORMATION STOCK PRICES TECHNOLOGICAL INVESTMENTS TECHNOLOGY TRANSFERS TRADE LIBERALIZATION TRADE POLICY TRADE REFORMS URL VALUE ADDED WAGES WEB WORKFORCE |
| spellingShingle |
ATTRITION AVERAGE PRODUCTIVITY BERTRAND COMPETITION BOOK VALUE CAPITAL EXPENDITURES COMMODITIES COMPARATIVE ADVANTAGE COMPETITIVE ENVIRONMENT COMPETITIVENESS COMPETITORS CONFIDENTIALITY CONSUMER PRICE INDEX CONSUMERS DEFLATION DEFLATORS DEVALUATION DEVELOPMENT ECONOMICS DISCUSSION DISCUSSIONS ECONOMETRIC ANALYSIS ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC PROGRESS ECONOMIC RESEARCH ECONOMIES OF SCALE ELASTICITY ELASTICITY OF DEMAND ELASTICITY OF SUBSTITUTION ELECTRICITY EMPLOYMENT EQUIPMENT EXPORT MARKET EXPORTS FINANCIAL CONSTRAINTS FINANCIAL SUPPORT FIXED COSTS FOREIGN COMPETITION FOREIGN DIRECT INVESTMENT FREE TRADE GLOBAL ECONOMY GLOBALIZATION GROWTH MODELS HISTORY OF ECONOMIC THOUGHT HUMAN CAPITAL IDEA IDEAS IMPERFECT COMPETITION IMPORT BARRIERS INCUMBENT INDUSTRY PRODUCTIVITY INEFFICIENCY INNOVATION INTEGRATION INTERNATIONAL COMPETITION INTERNATIONAL TRADE INTUITION INVENTORY LABOR PRODUCTIVITY LABOUR LABOUR PRODUCTIVITY LDCS LEARNING LESS DEVELOPED COUNTRIES MACROECONOMIC SHOCKS MANAGERIAL SKILLS MANUFACTURING MANUFACTURING INDUSTRIES MARGINAL COST MARGINAL PRODUCT MARKET ACCESS MARKET SHARE MARKET SHARES MICROECONOMICS MISSING VALUES MONOPOLY NETWORKS ORGANIZATIONAL CAPITAL PATENTS POLITICAL ECONOMY POLITICAL ECONOMY OF TARIFFS POLITICAL ECONOMY OF TRADE POLITICAL SCIENCE PRODUCT INNOVATION PRODUCTIVITIES PRODUCTIVITY PRODUCTIVITY GROWTH PROFIT MAXIMIZATION R&D RESULT RESULTS SOURCES OF INFORMATION STOCK PRICES TECHNOLOGICAL INVESTMENTS TECHNOLOGY TRANSFERS TRADE LIBERALIZATION TRADE POLICY TRADE REFORMS URL VALUE ADDED WAGES WEB WORKFORCE Iacovone, Leonardo The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization |
| geographic_facet |
The World Region |
| relation |
Policy Research working paper ; no. WPS 4930 |
| description |
This paper studies how liberalization
affects productivity growth using micro-level plant data.
While previous studies have already shown the existence of a
positive relationship between competition and economic
performance, the novelty of this paper is that it analyzes
not only the average impact of liberalization, but also goes
"beyond the average" and shows how the
liberalization can affect dissimilar plants in a different
way. The author first develops a model which predicts that,
while the impact of liberalization on productivity growth is
positive "on average", more advanced firms tend to
benefit more. In fact, liberalization generates two
competing effects: on one side it spurs more innovative
efforts because of the increased entry threat by foreign
competitors, on the other side, enhanced competition
curtails expected profits and reduces the funds available to
finance innovative activities. The pro-competitive effect is
weaker for less advanced firms as for them it is harder to
catch-up with the "technology frontier". These
predictions are then tested focusing on Mexican plants
during the NAFTA liberalization. The results show that a 1
percent reduction in tariffs spurred productivity growth
between 4 and 8 percent on average. However, for backward
firms this effect is much weaker if not close to zero,
otherwise for more advanced ones this effect is stronger
with productivity growing between 11 and 13 percent.
Consistent with the theoretical model the results are
stronger in those sectors where the scope for innovative
activities is more pronounced. These results are
particularly important for policy makers because they
suggest that while increasing competition may be good in
spurring average productivity, it is also true that this
effect does not hold for all type of firms, in particular
more backward firms may need some complementary support
policy to upgrade their capacities and keep up with the more
competitive environment. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Iacovone, Leonardo |
| author_facet |
Iacovone, Leonardo |
| author_sort |
Iacovone, Leonardo |
| title |
The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization |
| title_short |
The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization |
| title_full |
The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization |
| title_fullStr |
The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization |
| title_full_unstemmed |
The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization |
| title_sort |
better you are the stronger it makes you : evidence on the asymmetric impact of liberalization |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090513134707 http://hdl.handle.net/10986/4124 |
| _version_ |
1764390022322061312 |
| spelling |
okr-10986-41242021-04-23T14:02:15Z The Better You Are the Stronger It Makes You : Evidence on the Asymmetric Impact of Liberalization Iacovone, Leonardo ATTRITION AVERAGE PRODUCTIVITY BERTRAND COMPETITION BOOK VALUE CAPITAL EXPENDITURES COMMODITIES COMPARATIVE ADVANTAGE COMPETITIVE ENVIRONMENT COMPETITIVENESS COMPETITORS CONFIDENTIALITY CONSUMER PRICE INDEX CONSUMERS DEFLATION DEFLATORS DEVALUATION DEVELOPMENT ECONOMICS DISCUSSION DISCUSSIONS ECONOMETRIC ANALYSIS ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC ACTIVITY ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC PROGRESS ECONOMIC RESEARCH ECONOMIES OF SCALE ELASTICITY ELASTICITY OF DEMAND ELASTICITY OF SUBSTITUTION ELECTRICITY EMPLOYMENT EQUIPMENT EXPORT MARKET EXPORTS FINANCIAL CONSTRAINTS FINANCIAL SUPPORT FIXED COSTS FOREIGN COMPETITION FOREIGN DIRECT INVESTMENT FREE TRADE GLOBAL ECONOMY GLOBALIZATION GROWTH MODELS HISTORY OF ECONOMIC THOUGHT HUMAN CAPITAL IDEA IDEAS IMPERFECT COMPETITION IMPORT BARRIERS INCUMBENT INDUSTRY PRODUCTIVITY INEFFICIENCY INNOVATION INTEGRATION INTERNATIONAL COMPETITION INTERNATIONAL TRADE INTUITION INVENTORY LABOR PRODUCTIVITY LABOUR LABOUR PRODUCTIVITY LDCS LEARNING LESS DEVELOPED COUNTRIES MACROECONOMIC SHOCKS MANAGERIAL SKILLS MANUFACTURING MANUFACTURING INDUSTRIES MARGINAL COST MARGINAL PRODUCT MARKET ACCESS MARKET SHARE MARKET SHARES MICROECONOMICS MISSING VALUES MONOPOLY NETWORKS ORGANIZATIONAL CAPITAL PATENTS POLITICAL ECONOMY POLITICAL ECONOMY OF TARIFFS POLITICAL ECONOMY OF TRADE POLITICAL SCIENCE PRODUCT INNOVATION PRODUCTIVITIES PRODUCTIVITY PRODUCTIVITY GROWTH PROFIT MAXIMIZATION R&D RESULT RESULTS SOURCES OF INFORMATION STOCK PRICES TECHNOLOGICAL INVESTMENTS TECHNOLOGY TRANSFERS TRADE LIBERALIZATION TRADE POLICY TRADE REFORMS URL VALUE ADDED WAGES WEB WORKFORCE This paper studies how liberalization affects productivity growth using micro-level plant data. While previous studies have already shown the existence of a positive relationship between competition and economic performance, the novelty of this paper is that it analyzes not only the average impact of liberalization, but also goes "beyond the average" and shows how the liberalization can affect dissimilar plants in a different way. The author first develops a model which predicts that, while the impact of liberalization on productivity growth is positive "on average", more advanced firms tend to benefit more. In fact, liberalization generates two competing effects: on one side it spurs more innovative efforts because of the increased entry threat by foreign competitors, on the other side, enhanced competition curtails expected profits and reduces the funds available to finance innovative activities. The pro-competitive effect is weaker for less advanced firms as for them it is harder to catch-up with the "technology frontier". These predictions are then tested focusing on Mexican plants during the NAFTA liberalization. The results show that a 1 percent reduction in tariffs spurred productivity growth between 4 and 8 percent on average. However, for backward firms this effect is much weaker if not close to zero, otherwise for more advanced ones this effect is stronger with productivity growing between 11 and 13 percent. Consistent with the theoretical model the results are stronger in those sectors where the scope for innovative activities is more pronounced. These results are particularly important for policy makers because they suggest that while increasing competition may be good in spurring average productivity, it is also true that this effect does not hold for all type of firms, in particular more backward firms may need some complementary support policy to upgrade their capacities and keep up with the more competitive environment. 2012-03-19T19:10:23Z 2012-03-19T19:10:23Z 2009-05-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090513134707 http://hdl.handle.net/10986/4124 English Policy Research working paper ; no. WPS 4930 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region |