Linking Trade and Productivity: New Research Directions

Abstract

It is a mistake to think of productivity growth as an orderly shift in the production function of the representative plant. Gradual processes of technological diffusion or the displacement of inefficient plants with efficient ones are what matter. Trade orientation may affect these processes through many channels. Exposure to increased foreign competition is found to be associated with improvements in the average level of technical efficiency, reductions in the cross-plant dispersion in technical efficiency, and reductions in plant size. However, preliminary work suggests no clear link between trade policies and patterns of entry and exit.