Transcript Trade Liberalization and Productivity Growth

Trade Liberalization, FDI, and
Productivity Growth:
Russian experience
Key Questionы:
• In Chapter XXX we studied theory and
evidence of the effect of trade liberalization
on productivity.
• What does the evidence from Russian Firms
say about presence of such effects?
• What effect can WTO accession have on
Russian firms?
Outline
• Theory
• Evidence from other countries
• Firms-level study of Russia
– Effect of import
– Effect of FDI
• Survey of the potential effects of WTO
accession
Traditional Theory of the Effect of Trade
Liberalization on Productivity Was
Studied in Chapter XXX
Major conclusion: in most cases trade liberalization
have positive effect on overall productivity of
domestic firms, although the least productive
firms may have to close. Reasons for positive
effect:
• Incentives to restructure – competition effect
• Grater information exchange – demonstration effect
Exception: presence of external economies of scale,
i.e. Learning by doing on the level of industry, not
enterprise.
Empirical literature
• Detailed overview – Chapter XXX
• Bolaky and Freund (2004): effects depends on
institutions. If too much regulations, effect is
negative.
• Djankov, Murrel (2000) show that in most Eastern
European countries effect of trade liberalization
and increase in competition with imports on
domestic firms was positive.
Effects of FDI
• Direct effect
• Spillovers:
– Horizontal
• Demonstration effect
• Attraction of labor, trained on FDI
• Competition effect (+-)
– Vertical effect
• Incentives for domestic companies to increase productivity to
become suppliers of domestic firms
• Foreign-owned firms sometimes assist domestic suppliers
Evidence from transition
countries
• Direct effect is always positive
• Unclear results for horizontal effect. In some
countries (Romania) the effect is positive, in
others either negative or insignificant.
• Vertical effects are often positive or insignificant.
– Both reasons for vertical effect seem to be present.
Trade liberalization in Russia
• 1992:
– State monopoly on foreign trade canceled
– Import subsidies and export tariffs were introduced.
Subsidies amounted to 10-25% of GDP, and lead to
losses for the country of up to 10% of GDP.
• 1993: import tariffs started to be introduced
• 1994 import subsidies fully eliminated
• 1995-6: decrease in some import tariffs, and
elimination of export tariffs in the framework of
IMF stabilization program
• 1998-1999: export tariffs on oil reintroduced.
• Early 2000s: unification of import tariff rates,
which resulted in tariff decline.
Policy toward FDI in Russia
• 1989 – joint ventures are allowed
• 1991 – fully foreign-owned subsidiaries are
allowed
• Privatization: foreigners officially are allowed to
participate, but discriminated against.
• Now: officially little obstacles for FDI, but in
practice they exist both on the federal level
(“strategic assets) and on the regional one (red
tape).
Bessonova et al (2003):
firm-level study of the effect of
trade liberalization on Russian
firms
Effects on TFP
• Effect of competition with imports
• Effects of imported inputs
• Horizontal, backward and forward linkages
from FDI
• Inter-relationships with complexity
Data
•
•
•
•
Russian firms census 1996-2001
FDI census 1996-2000
Trade statistics 1996-2001
Input-output tables 1995
Regression analysis: results for
imports
Interpretation problem: 1998 crisis. However,
correction of exchange rate was often a part of
trade liberalization programs in other countries
• 1994-1998
– Import competition has no effect
– Imported inputs have positive effect
• 1998-2001
– Import competition is positive
– Imported inputs have negative effect (disappears
quickly)
Complexity
• Disorganization theory
• Is the effect of competition in complex
sectors different because of disorganization?
• Results:
– Effect of import competition (interaction term)
is negative before 1998
– This effect becomes positive after the crisis
Conclusions about effect of import
competition and trade liberalization
in Russia:
• In most of the 1990s the effect of trade
liberalization is difficult to separate from the
effects of other reforms.
• Russian firms adjusted to working in market
economy by 1998, so their reaction to 1998 crisis
was inline with theoretical predictions.
• Changes in the exchange rate are more important
factor, which affects behavior of Russian firms,
than small changes in trade policy measures.
Regression analysis: results for
FDI
• Horizontal spillovers
– Positive and significant before crisis
– Positive but insignificant
• Vertical spillovers
– Forward are negative and significant (FDI
among suppliers)
– Backward are positive and significant (FDI
among consumers)
More results on FDI: Yudaeva et
al 2003
• Foreign-owned companies in Russia are
twice as more efficient than the domestic
ones.
• Regional policy can have negative effect on
foreign firms productivity
• Horizontal spillover effect is positive
• Horizontal spillover effect depends
positively on education level
2004 enterprise survey
Motivation
• In Russia many people do not understand
and trust the analysis (often they have a
valid reason to do so), presented above
• Let’s conduct a survey!
Methodology
• Questioner sent by mail to firms, participating in
IET surveys
• Questioner was sent to 1332 firms
• 634 forms replied
Problems: non-random sample
• Construction of original sample is non-random:
long-term relationships, new firm, small and large
firms are underrepresented
• Response is non-random
Industrial composition of the
sample: representative
Goskomstat
50%
Questioner sent
Reply
40%
30%
20%
10%
0%
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Oth
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Answer to question: What if
import prices decrease by 10%
passive
restructuring
yes
no
active
yes
restructurin
g
no
45%
9%
25%
21%
Conclusions
• In the last 10 years the effect of foreign
policy on domestic companies was much
smaller than the effect of other reforms
• After 1998 domestic firms started to react to
policy shocks in the way, predicted by
theory. The effect of exchange rate changes
in this period is more important than the
effect of trade policy changes, though.
Conclusions (cont).
• FDI in Russia are more productive than the
domestic firms, and presence of FDI has positive
spillovers on domestic firms. Regional policies
and education level can influence overall effect of
FDI.
• Fears in Russia of devastating negative effect if
import competition and WTO accession are not
confirmed by firms-level evidence and survey
evidence