european economics association conference gothenburg, august 2013 trinity college dublin carol...

European Economics Association ConferenceGothenburg, August 2013

Trinity College Dublin

Carol Newman, Trinity College Dublin

John Rand, University of Copenhagen

Finn Tarp, UNU-WIDER and University of Copenhagen

Trade liberalization, supply chains and productivity

Overview of paper Explore the relationship between trade liberalization and firm

productivity using the case of Vietnam 2002-2010 Focus on the impact of imported intermediates on firm productivity

Key contributions: Focus on effects through the supply chain distinguishing between

competition and productivity channels on import and non-import firms

Introduce a new measure of supply chain linkages that measures the extent of exposure of a sector to imports upstream using Supply Use Tables

Exploit differences in the effects in competitive and concentrated sectors and in the impact of imports into competitive and concentrated upstream sectors.

We explicitly investigate the technology transfer channel as a source of productivity growth for firms that import foreign inputs

Related Literature Large empirical literature linking trade to productivity improvements

at the industry and firm level: Tybout et al. (1991), Pavcnik (2002), Eslava et al. (2004), Fernandes (2007)

Specific evidence for imported inputs as a channel for productivity growth provided by: Kasahara and Rodrigue (2008) for Chile, Halpern et al. (2005) for Hungary,

Goldberg et al. (2008) for India Amiti and Konings (2007) for Indonesia and that gains are achieved

through learning, variety and quality effects.

Some contradicting evidence provided by: Van Biesebroeck (2003) no evidence that productivity improvements in

Columbia are due the use of foreign inputs Muendler (2004) limited effects of foreign inputs on productivity in Brazil.

Description of mechanisms Assume that both upstream and downstream sectors are

competitive.

An expansion of imports into a sector will increase competitive pressures that will result in overall efficiency gains (Holmes and Schmitz, 2001; Amiti and Konings, 2007). This will lead to a fall in the price of inputs for firms further along

the supply chain.

An expansion of imported intermediates will lead to technology diffusion through greater variety, better quality inputs and new technologies embodied in those inputs (Grossman and Helpman, 1991). These productivity effects will affect firms that import

intermediate – i.e. they may learn from importing This in turn might increase competitive pressure on downstream

non-import firms

Identification of mechanisms Identification is complicated by the fact that data are only

available on the value of inputs and outputs Physical productivity cannot be estimated and so we must

use a revenue based measures (see Foster et al, 2008). Implication is that observed productivity changes will

embody both within-firm physical productivity gains and changes in prices and/or mark-ups

We consider how the impact of an expansion of imports in upstream differs for competitive versus concentrated sectors

Focusing on competitive sectors allows us to detect within-firm effects

Identification of mechanisms Competition Effects Impact of decline in costs in upstream sectors:

In concentrated downstream sectors lower costs will lead to larger mark-ups as there will be no competitive pressures to erode costs. This will look like productivity improvements on a revenue based measure of productivity.

In competitive downstream sectors price competition will erode away any cost advantages. Should observe no change in measured productivity downstream through this mechanism.

Identification of mechanisms Productivity Effects: Detecting productivity improvements through the availability of

more variety, better quality inputs, or embodied technologies:

Can be isolated by testing whether importing firms in competitive sectors experience productivity improvements.

BUT: Upstream sectors will vary in how competitive they are. Impact of imports on prices upstream will be more pronounced

in competitive upstream sectors Cannot distinguish between competition and productivity effects

in these sectors

Identification of mechanisms Productivity Effects: Detecting productivity improvements through the availability of

more variety, better quality inputs, or embodied technologies:

HOWEVER: An expansion of imports into concentrated upstream sectors

should not also lead to price effects Any observed productivity effects on firms in downstream

sectors will be associated with real productivity as opposed to competition effects

Identification of mechanisms REALLOCATION EFFECTS: Impact of productivity improvements experienced by competing

import firms on non-import firms downstream

If import firms experience productivity improvements due to technology transfers, then downstream firms will find it more difficult to compete

Only the most efficient firms will survive. Least efficient will exit. Overall productivity will improve due to

reallocation of resources toward more efficient firms (Melitz, 2003)

Empirical Approach Step 1: Productivity measurement Index Number approach - productivity measured relative to a

reference point which we take as the mean level of productivity in a given sector in a given year

To analyse changes over time we chain link productivity differential to changes in the reference level of productivity from year to year

t k

m

__________

mjt

________

mjt

_______

mjt

____

mjt

k

m

_________

mjtmijt

_____

mjtmijt

t _________

jt

________

jt

_______

jtijtijt

XlnXlnss

XlnXlnss

YlnYlnYlnYln

2 111

1

21

2

1

2

1

output of firm in sector in year

amount of input used by the firm

expenditure of firm on input as a share of firm's total expenditure

ijt

mijt

mijt

Y i j t

X m

s m

Empirical Approach Step two: fixed effects regression Regress productivity on a series of indicator variables that capture

mechanisms Also include an indicator of trade liberalization (accession to WTO)

given that competition effects associated with an expansion in imports likely to be different under different trade regimes

Baseline:

ijttjijtijt

ijtijt

ijtijt

ijtijtijtTFP

eτφα

WTO*firmIm_δWTOδfirmIm_δ

upIm_*WTO*firmIm_βWTO*upIm_β

upIm_*firmIm_αupIm_α

ζZξX

321

21

21

Empirical Approach

Interact all import variables with sector-level measure of concentration:

ni ijtjt sHHI 1

2

Empirical Approach Overall impact of change in imports into upstream sectors

given by:

Main predictions: Competition Effects Non-import firms: Import firms: Productivity Effects: Import firms: Reallocation Effects: Non-import firms

4321

4321

HHI*WTO*firmIm_βHHI*WTOβWTO*firmIm_βWTOβ

HHI*firmIm_αHHIαfirmIm_ααupIm_

ijtijt

ijtijtijt

ijtTFP

0 , 0 111 βαα

0 , 0 111 βαα

0 , 0 222 βαα

0 , 0 222 βαα

Vietnamese Context The opening up of the Vietnamese economy began in 1986

with the adoption of a range of policy measures under doi moi (renovation) in particular relating to trade liberalisation and the promotion of foreign direct investment (FDI)

Trade liberalization took the form of the removal of export taxes and non-tariff barriers and the negotiation of various trade agreements with ASEAN, the US and the EU which ultimately lead to WTO accession in 2007

Significant growth in exports and imports over 2000s: Steady growth in both is evident throughout the 2000s but in

particular post WTO accession in 2007

Trade in Vietnam

Source: General Statistics Office Vietnam, National Accounts

2002 2003 2004 2005 2006 2007 2008 2009 20100.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

Exports/GDP Imports/GDP

Data Vietnamese Enterprise Survey collected annually by the

GSO for 2002 to 2010 Data gathered on population of all registered enterprises in

Vietnam with 30 employees or more and representative sample of smaller firms

47,556 firms over 10 year period totaling 141,262 observations

Export and import data at 4-digit level taken from COMTRADE

Supply Use Tables for Vietnam in 2007 to measure input-output linkages along the supply chain

Manufacturing firm characteristicsNumber of

firmsSize

EmployeesEntrants

(%)Exits(%)

Foreign(%)

State(%)

Import(%)

2002 13,663 156 24.83 17.35 11.89 10.43 12.76

2003 15,401 159 26.68 15.39 12.35 8.84 13.44

2004 18,238 151 28.55 11.91 12.13 6.97 13.33

2005 21,618 141 25.68 15.88 11.81 5.58 13.38

2006 23,803 136 23.60 13.93 12.29 4.67 13.38

2007 28,821 133 28.92 14.84 11.85 3.95 12.23

2008 36,363 113 32.50 21.50 10.64 3.13 10.12

2009 39,101 108 26.99 18.31 10.82 2.96 10.67

2010 38,217 120 16.42 - 10.86 2.76 14.57

Measuring supply chain linkages Vietnam Supply-Use Tables (SUT) for 2007 The SUT maps the use of 138 commodities in 112

production activities We link these production activities to the 4-digit ISIC codes

used in the Enterprise Survey to produce 97 comparable sector codes

The SUT data are used to construct a sets of weights that captures upstream linkages between sectors, whereby for each sector i, their link with upstream sector j is the proportional contribution of output from sector j to its total input base

Weights used to compute a weighted average of imports from upstream sectors

Exposure to imports through supply chainSector 2002 2003 2004 2005 2006 2007 2008 2009 201015 28.10 9.98 12.62 12.32 10.11 11.96 10.98 7.44 5.7617 11.24 4.58 7.13 7.24 6.28 7.44 7.07 4.02 3.2418 5.55 2.33 3.47 3.60 2.95 2.85 2.71 1.47 0.8819 5.92 4.33 4.15 3.37 3.56 3.32 2.84 2.37 1.9720 36.34 11.10 12.13 13.63 12.54 12.95 11.97 8.92 7.0421 24.60 6.12 5.64 9.19 5.24 6.22 7.45 4.32 3.7322 1.69 0.50 0.55 0.62 0.33 0.52 0.40 0.38 0.2924 40.53 14.27 15.42 16.28 15.24 14.70 13.29 8.82 7.7225 30.12 11.22 12.09 11.77 11.52 11.45 10.38 6.81 6.3726 38.74 18.82 20.70 20.61 20.23 18.86 16.81 10.89 9.3828 12.12 6.23 9.67 9.88 9.29 9.46 7.86 5.44 3.8429 18.61 7.53 9.59 9.98 9.97 9.51 8.42 5.01 4.3831 7.04 2.65 3.87 3.91 3.23 3.56 3.10 1.99 1.5032 17.03 6.82 8.92 8.93 8.11 8.55 8.17 5.17 3.6033 35.60 15.99 19.07 19.77 18.79 18.11 16.68 10.44 7.7734 6.07 15.24 6.99 8.21 8.39 11.43 10.11 8.68 5.2935 19.66 8.62 10.98 11.24 11.43 11.33 10.01 6.21 5.5736 0.58 0.04 0.05 0.05 0.04 0.03 0.02 0.02 0.01

Empirical Approach Control Variables: Firm specific factors:

1. Import firm

2. Export firm

3. Exit firm (in subsequent period)

4. Switch firm (in subsequent period)

5. Capital-labor ratio

6. Size of firm

7. Foreign-owned firm

8. State-owned firm Sector specific factors:

1. Average capital-labor ratio

2. Average size of firms in sector

3. Proportion of revenue generated by foreign owned firms

4. Proportion of revenue generated by state owned firms

5. Concentration Ratio

Also estimate models using balanced panel as additional control for reallocation effects

Results – competition and productivity effects

(1) (2) (3)Balanced

Competitive pre WTO:

Prop imports upstream 0.002** 0.004*** 0.005***

Import Firm*Imports upstream 0.000 -0.002 -0.003*

Concentrated pre WTO:

HHI*Prop imports upstream -0.018** -0.035** -0.043**

HHI*Import Firm*Imports upstream 0.003 0.025** 0.035**

Competitive post WTO:

WTO* Imports upstream -0.003*** -0.004*** -0.005***

WTO* Import Firm * Imports upstream 0.000 0.0005 0.000

Concentrated post WTO:

HHI*WTO* Imports upstream 0.082*** 0.104*** 0.153***

HHI*WTO* Import Firm * Imports upstream -0.043*** -0.055*** -0.050**

Upstream concentration controls No Yes Yes

R-squared 0.537 0.526 0.874

Firms 47,602 47,602 4,832

n 141,876 141,876 35,749

1α2α3α4α1β2β3β4β

Detecting productivity gains to import firms

(1) (2) (3)Balanced














R-squared 0.537 0.526 0.874

Firms 47,602 47,602 4,832

n 141,876 141,876 35,749


0 , 0 222 βαα

Detecting productivity gains to import firms


(2) (3)

Upstream Concentration Differential:Competitive Downstream:

Prop imports upstream -0.026** -0.033*Import Firm -0.012 -0.071Import Firm*Imports upstream 0.023** 0.035**WTO* Imports upstream 0.011 0.055**WTO* Import Firm -0.100 -0.129WTO* Import Firm * Imports upstream -0.002 -0.011Concentrated Downstream:

HHI*Prop imports upstream 0.231 0.315HHI*Import Firm 0.803 1.081HHI*Import Firm*Imports upstream -0.295** -0.433**HHI*WTO* Imports upstream -0.156 -1.520***HHI*WTO* Import Firm -0.741 -0.809HHI*WTO* Import Firm * Imports upstream 0.103 -0.220

R-squared 0.526 0.874Firms 47,602 4,832n 141,876 35,749

Detecting competition and reallocation effects among non-import firms

(1) (2) (3)Balanced














R-squared 0.537 0.526 0.874

Firms 47,602 47,602 4,832

n 141,876 141,876 35,749


Detecting competition and reallocation effects among non-import firms

(1) (2) (3)Balanced














R-squared 0.537 0.526 0.874

Firms 47,602 47,602 4,832

n 141,876 141,876 35,749


00 111 βα,α

Results – reallocation effects


(1)Exit

(2)Switch Sector

(3)Start Importing


Prop imports upstream 0.001*** 0.002 0.001*Import Firm*Imports upstream 0.000 -0.001Concentrated pre WTO:

HHI*Prop imports upstream -0.005 0.003 -0.004*HHI*Import Firm*Imports upstream 0.003 0.002Competitive post WTO:

WTO* Imports upstream -0.001* 0.001 0.0005WTO* Import Firm * Imports upstream 0.001 -0.001Concentrated post WTO:

HHI*WTO* Imports upstream 0.005 0.004 0.002HHI*WTO* Import Firm * Imports upstream 0.007 0.010

R-squared 0.075 0.074 0.110Firms 45,990 45,990 45,820n 137,781 137,781 127,686


Technology Channel Further investigation of productivity spillovers for import

firms post-WTO accession

Indicator for whether firm has any international suppliers Indicator for whether relationship with international supplier

resulted in technology transfers

Perform same analysis using 2 years of data and including these indicator variables

Results – technology spillovers

1α2α3α4α1β2β3β4β1α2α3α4α1β2β3β4β

(2) (3) (4) (5) (6)

Competitive:

Prop imports upstream 0.040* 0.047** -0.014 -0.013 -0.023Int supplier 0.021 0.033Int supplier * Imports upstream -0.005 -0.010**Int supplier tech transfers -0.022* -0.009 0.033Int supplier tech transfers * Imports upstream -0.003 -0.010*Concentrated

HHI*Prop imports upstream -0.097 0.056HHI* Int supplier -0.171HHI* Int supplier*Imports upstream 0.056HHI* Int supplier tech transfers -0.587*HHI*Int supplier tech transfers*Imports upstream 0.095*

R-squared 0.768 0.770 0.803 0.803 0.807Firms 7,830 7,830 2,848 2,848 2,848N 12,530 12,530 4,104 4,104 4,104

Summary of key findings We find little evidence of pure productivity improvements

associated with importing intermediates in the post-WTO period. We find some suggestive evidence of positive productivity impacts

in the pre-WTO period that are likely attributed to higher quality imported inputs, more imported varieties or technology transfers.

Consistent with this finding is evidence of reallocation effects in the pre-WTO period with the least efficient non-import firms exiting or beginning to import intermediates.

Once trade is fully liberalized this source of productivity growth for importing firms disappears along with reallocation effects through this channel.

This is suggestive of lower quality imports or the dumping of inferior intermediates in the post-WTO period leading to fewer opportunities for technology transfers.

Further investigation into whether what you import matters

Thank you

Questions and comments most welcome

APPENDIX

Sectoral composition in VietnamShare of Employment

Manufacturing HT Manufacturing

Services Agriculture

2002 51.06 14.74 39.27 9.67

2003 53.20 15.31 38.42 8.37

2004 53.83 15.63 38.55 7.62

2005 53.10 15.49 39.62 7.28

2006 54.18 15.93 39.05 6.76

2007 54.01 16.51 39.91 6.08

2008 50.05 15.72 42.49 7.17

2009 48.83 16.20 44.44 6.72

2010 45.67 15.19 48.35 5.97

Sectoral composition in VietnamShare of Output



2002 33.89 15.07 59.51 6.60

2003 34.23 16.01 60.00 5.76

2004 37.74 17.60 55.29 6.96

2005 37.10 17.50 55.55 7.35

2006 37.75 17.82 55.72 6.52

2007 38.73 19.03 56.82 4.45

2008 36.08 18.05 60.68 3.24

2009 40.14 20.33 56.75 3.10

2010 37.29 19.47 59.90 2.81

Sectoral exposure to trade: DirectShare of Exports Share of Imports

Man Man HT Ag Man Man HT Ag

2002

73.45 18.29 26.55 93.85 70.29 6.15

2003

49.87 17.43 50.12 89.70 71.34 10.29

2004

34.99 13.83 65.01 83.90 69.71 16.08

2005

46.97 17.27 53.03 84.19 63.05 15.78

2006

35.58 12.53 64.42 86.11 70.96 13.78

2007

31.38 12.87 68.62 82.92 70.38 16.90

2008

36.18 13.15 63.81 77.55 63.18 22.27

2009

32.36 13.98 67.62 71.39 58.33 28.31

2010

33.23 14.85 66.69 70.12 58.26 29.55

Trade in Vietnam – Sectoral Composition

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

400000000

450000000

500000000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports Imports Man Exports Man Imports

Source: Author’s calculations based on COMTRADE database.Notes: Deflated to 2000 values using 4-digit sector level GDP deflator

Sectoral exposure to trade: Indirect

0

100000000

200000000

300000000

400000000

500000000

600000000

700000000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Exports from upstream Imports into upstream

Exports from downstream Imports into downstream

0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010



0

20000000

40000000

60000000

80000000

100000000

120000000

140000000

160000000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010



Manufacturing Services

Agriculture

Sectoral composition in VietnamShare of Employment



2001 49.69 14.62 39.41 10.89

2002 51.06 14.74 39.27 9.67

2003 53.20 15.31 38.42 8.37

2004 53.83 15.63 38.55 7.62

2005 53.10 15.49 39.62 7.28

2006 54.18 15.93 39.05 6.76

2007 54.01 16.51 39.91 6.08

2008 50.05 15.72 42.49 7.17

2009 48.83 16.20 44.44 6.72

2010 45.67 15.19 48.35 5.97

Sectoral composition in VietnamShare of Capital



2001 33.06 16.81 56.54 10.39

2002 37.87 18.89 51.46 10.66

2003 37.83 19.38 52.92 9.24

2004 36.54 18.59 54.56 8.90

2005 35.64 18.63 56.57 7.79

2006 33.72 18.29 59.63 6.65

2007 30.00 16.15 65.47 4.52

2008 30.48 16.39 66.07 3.45

2009 29.26 17.60 67.10 3.64

2010 20.97 12.31 75.41 3.62

Sectoral composition in VietnamShare of Output



2001 34.77 16.35 57.04 8.18

2002 33.89 15.07 59.51 6.60

2003 34.23 16.01 60.00 5.76

2004 37.74 17.60 55.29 6.96

2005 37.10 17.50 55.55 7.35

2006 37.75 17.82 55.72 6.52

2007 38.73 19.03 56.82 4.45

2008 36.08 18.05 60.68 3.24

2009 40.14 20.33 56.75 3.10

2010 37.29 19.47 59.90 2.81

Sectoral exposure to trade: DirectShare of Exports Share of Imports

Man Man HT Ag Man Man HT Ag

2001

42.21 15.21 57.79 84.50 65.86 15.49

2002

73.45 18.29 26.55 93.85 70.29 6.15

2003

49.87 17.43 50.12 89.70 71.34 10.29

2004

34.99 13.83 65.01 83.90 69.71 16.08

2005

46.97 17.27 53.03 84.19 63.05 15.78

2006

35.58 12.53 64.42 86.11 70.96 13.78

2007

31.38 12.87 68.62 82.92 70.38 16.90

2008

36.18 13.15 63.81 77.55 63.18 22.27

2009

32.36 13.98 67.62 71.39 58.33 28.31

2010

33.23 14.85 66.69 70.12 58.26 29.55

european economics association conference gothenburg, august 2013 trinity college dublin carol...

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