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

4) There is no evidence of relevant scale efficiency gains. This result, which runs counter to
conventional wisdom about the sources of gains from trade in the presence of scale economies,
can be explained as follows. First, the evidence suggests that large firms, which account for a
disproportionate share of industry output, are close to minimum efficient scale and hence their
scale efficiency is unaffected by trade liberalization. Second, most small firms operating at an
inefficient scale are de facto insulated from foreign competition, since they only compete for local
market niches. Third, the recent episodes of trade reform in the developing world often represent
examples of unilateral trade liberalization, which does not imply scale efficiency gains. Indeed, the
trade theory suggests that under certain conditions (e.g., competition `a la Cournot with segmented
markets) unilateral trade liberalization reduces scale efficiency in the trade liberalizing country.

5) There is robust evidence of a pro-competitive effect of trade liberalization. The pro-
competitive effect shows up as reduced price-marginal cost mark-ups for firms exposed to foreign
competition, especially if they belong to highly concentrated industries.

6) There is no evidence, in the short-run, either of learning-by-exporting effects or of beneficial
spillover effects from foreign owned firms to local firms. In particular, exporting firms are more
efficient than non-exporting firms, but their productivity trajectories do not seem to change after
they break into foreign markets. Similarly, foreign owned firms are in general more efficient than
local firms, but their presence does not seem to positively influence the productivity of local firms
belonging to the same sectors.

7) The plant-level evidence suggests to reconsider the role played international trade in the
dramatic increase in wage inequality observed in most trade liberalizing developing countries. In
particular, there is weak evidence that skill upgrading is correlated with measures of imported
technology. Hence, trade liberalization, by reducing the price of imported technology, may spur
the demand for imported technology, which in turn may increase the relative demand for skilled
labor, as technology adoption is a skill-intensive activity. Further, there is evidence that exporting
plants expand at the expense of non-exporting plants after trade liberalization. Since the former

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