Trade Liberalization, Firm Performance and Labour Market Outcomes in the Developing World: What Can We Learn from Micro-LevelData?

Trade Liberalization, Firm Performance and

Labor Market Outcomes in the Developing World

What Can We Learn From Micro-Level Data?*

Paolo EpifanP

University of Parma and CESPRI-Bocconi University

December 2002

Abstract

We review the micro-level evidence on the effects of trade and investment liberalization in
the developing world. We focus, in particular, on the effects of the 1991 trade reform in India,
since it provides an excellent controlled experiment in which the effects of a drastic trade
regime change can be measured. The main findings can be summarized as follows. 1) There is
evidence of trade-induced productivity gains (in this respect, however, India is something of an
exception); 2) These gains mainly stem from the intra-industry reallocation of resources among
firms with different productivity levels and: 3) they are larger in import competing sectors; 4)
There is no evidence of significant scale efficiency gains. Indeed, unilateral trade liberalization
is often associated with a reduced scale efficiency; 5) There is evidence of a pro-competitive
effect of trade liberalization; 6) There is no evidence either of learning-by-exporting effects or

*This paper is part of the joint Centro Studi Luca d’Agliano-World Bank project “Trade, technology diffusion
and performance in Indian manufacturing”. I have benefited from the comments of Francesco Daveri, Anna Falzoni,
Rodolfo Helg, Alessandra Tucci and Alessandro Turrini. I am especially grateful to Giorgio Barba Navaretti for
helpful discussion and advise. The usual caveat applies.

tCorrespondence: Universita Commerciale L. Bocconi, via Sarfatti, 25 - 20136 Milano (Italy). Phone: +39 02
58363378. Fax: +39 02 58363399. E-mail: [email protected]

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