F UNO A ç Ã O
GETULIO VARGAS
SEMINÁRIOS DE ALMOÇO
DA EPGE
Measuring the TFP costs of barriers to
trade
PEDRO CAVALCANTI FERREIRA
(EPGE/FGV)
Data: 02/06/2006 (Sexta-feira)
Horário: 12h 15 min
FGV
EPGE
Local:
Praia de Botafogo, 190 - 11 0 andar
Auditório nO 1
Coordenação:
Prof. Luis Henrique B. Braido
e-mail: [email protected]
l\:1easuring the TFP costs of barriers to trade
Pedro Cavalcanti Ferreira"
Alberto T'rejost
EPGE - Funcla(;âo Getulio Vargas
INCAE
April 28, 2006
Abstract
Thís arLicle performs outpnt decompositiolls in ol'del' to meaSUl'e
the eJ1ect of trade restrictío11s on total factor procluctívity anel labor
productjvity. lt is assumed an ecollomy with two traclable and
1l01l-
storable intermediate goods, used in the production of a. nOll-tradable
flnal good. The solution of the sLalic Lracle anel fador allocation problem generates implicitly a mapping between factor endOvvmenLS and
flnal output, which is then l1sed as an exogenous prodnctíon
fUllC-
ti011 in the decomposition exerci se. vVe find that for lllidclle income
economies vúth high tarilI rates, the effects 01' tracle restrictions are
sigllificant; in some cases, enough to a.ttribute to protectionism Olle
thil'd of lheir TFP disadvantage,
OI'
Luore. For lhese cconomics, the
impacl o[ trade rcstrictiolls on GDP per worker iH aIso l'ekvant.
-------------,---
'Praia ele Botafogo, 190, Rio de Janeiro,RJ, Brazil, 22253-900. ffTTeinl,((}fr;v.!J'r
t Apartado 0GO-4050, Alajuela, Costa Hica.
1
albcTto. tTé)osrfl'incac. cd'u
1
Introduction
vVe study and measure the eífects of international tmde paliey on LotaI fae{.or product.ivit.y and output leveIs. As opposed to the prevíous development
nceonnting liLcnüure 1 , \ve are not \vorried whether TFP
01'
factoni are Inore
relevnnt. in explaining output difl'erences. Instead, we perform outpnt de-compositiOl iS frorn a distindive perspcdive. \Ve are interesLed to estirnate in
the lirst pInce thc share of TFP difference that is due to distOl'tions cnused
by harrÍcrs to 1.rade. 0111' lnodel is adeqnate t.o this task hecause in essence
its trade portion is Lhe standard Hecksher-Ohlin moclel. TaríH's distOl't domestíc priccs introducing; an inefficiency in the allocation 01' fadol's between
the proctnd ion of inLermediaLe goods, tIms redncíng the value of national
proc1lJ(~t
at internationaI prices. In addition, the same price dist.ortion causes
<tu inefficiclJ(;y in the c110ice of the mix of inLcrrnediatc good hy .t:inal-good
procl!lcers.
Hence, policy instrulllents that incl'case the cost 01' lnternational trade
generate
inefficicnt equilibrium allocation of factors aeross industries. In
,tn
t,he lllodel, r:his inefficieney lIas an eHect similar to a [aIl in total factor prodlldivily. l'nder a eOllservative calibration of the pal'ameters that determine
the a.ggl'ega':.e, statíc importance of trade, we find that barriers to trade
be ver)' impxtant for poor countl'ies. Incteed, the model says Lhat for a
1 For
C<:tIl
COUIl-
inSÜtl'Ce, lVIallkiw, Romer anel "Veil (1992) anel Mankiw (1995) present.eei evidellce
t.hat factor~: (, f prodnct. iou
Others (e.g.
HCCOllUt
for the bnlk of i UCOllle di ffercnces acrOf:f: conn(.l·ie~:.
Klenow anel Hoell'iguez-Clal'e (1991), Prescott (199S) anel Hall and JOlles
(1999),) hOWe\Tr, ltave e:stabli:3l!ecl what now seelIB to be a COllsensus that (,ot.al factol'
prodllct.iv ity l';
lllOfe
relevant. thnn inpllts íu explaíuing; ou t.pllt. differences
try WiUl 1/4 of U8 capital/labor ratio, the sLatie elifference bdween having
tarifI leveI of 10%
OI"
100% can represent. a 10ss of output. of 8.7%. Apply-
ing t.he rnodel 1.0 the data of some countries'Nith a protccLionist past - Lhe
main excrcise of this art.icle -
\ive
find that as much as one thirel of their TFP
ditfercnce rei ative to the U8 ca,n be attribllted Lo restrÍctive t.rade poliey.
Although this is the 1110st elramatic result, we fóund sÍzable productivity anel
ontpllt eost.s oI barriers to trade in Iuany cases.
vVe use as ou!' main insLrument a model that follows Ferreira anel Trejos
(2006). In this framework, it is assumecl an econorny with L\vo tradable anel
non-stol'able intermeeliate gooCl<3, used in Lhe product.ion of a nOll-tradnble
final good. vVe focus
OH
the case
01'
a small, príce-taking economy. The so-
Illtion of the static tmde anel factor aLlocation problem genel'ate:s implicitly
a mapping between facto!" enelowments anel final output, \vhich cem then be
uHed as ,Ui exogenous productlon fuuction. '[,his (ixmulation is similar to Corden (1971), Trejos (1992) anel Ventura (1997) thaL use a fador-endowrnentH
framework to introduce t.rade in a macro model.
This artide has fonr sessions in adelition to Lhis introduction. The ncxt
session present.s the model used in our development decomposition exercises,
whilc sesslon three discusses data anel calibration. 8ession four pre:sents the
lnain rcsults and session five concludes.
T'ime is disnete and unhonnded. Our representative count.ry i8 small (a price
t.aker) anel populat.ed by a continuum of identical, illfinitely-lived individuaIs.
There are three goods produced in this economy. Two of those goods, called
/1 anel B, are non-stol'able, tradable intermediate produds. They are ouly
used to Inal:e the other good, called Y, a final produet that can be consumed
01'
invest.ed, but that CéUmot be traded. There are a180 tvvo factors oi" pro-
dm:Llon in l.his economy: labor in efficient nnits H and physical capit.al }{.
]'he endow1llcnt oI" labor, mea,sured in efficiency units, 1S given by:
\vhere li repI'esents eificiency-units oflahor per \vorker and s stands for schoo1··
ing. The production functio1l8 of A. and B are:
Wit.hout lo~s of generality, A i8 labor-illtensive:
(ta
<
0b.
The production 01'
the fhml good Y llfles only the intcnnediate goods. Becamc t.hese intennedi-
ate gooels are traelab1e, the amounts of t.hem that are used in the production
oI" the flnal ,l~ood (denotcd by lmverease a and b) may difIer from the amOllnts
produced A anel B. Tbtal ontpnt of Y is given by:
(1)
'2The l11CHk] follows closely Ji'erreíl"a and Trejo..s (2006) anel hence ít wíll on]y be presenteel
!lere a broad ()llt.line of its main components anel the equilíbriulll
~,olution
vrhere 8 1S total factor productivity.
VVe derive the allocation of capital K anel labor I1 aUlong the productioll
01' A and B, Lhe quantities
(J,
anel b of intermediale gooels nsed domeslically,
and the amount 01' final output Y thaL is produced. Because intennediate
goods are assumed t.o be l1on-slorable, and tbe lim-l.l good is nol lradable,
lhis i8 a static l)l'Oblel1l, which yields all equilibriul1l l1lapping
Y
=
F(I{, HIT, p)
that relates final oulput with factor endmvments. Second, because factors
are not tradable, we can simply use that equilibrium mapping F as if it ,;vere
an exogenonsly given lechnology.
To get Y
=
F'(K, HIT,p) in equilibrium notice that each period, the
equilibrium solntlons for {A, B, 0" b, q. V), T, Ki,
Hd
must satisfy t,he following
properties:
1. Producers 01' intermediate goods choose Ki. Hi In order to maxnmze
the period's profit,s:
n: A
2. Producers of .flual goods IIlé1Jemuze profits, taking domestic pnces as
glven:
a, l)
-"ll--,' - qa - l)
= argmaxíla')
a,l;
5
:3. Finnt-' make zero profits,
qa
-+ b
qA
B
marh:ts dear,
anel n;:;ents neither
bOITOW
from
nOI"
lencl to the world economy,
pA+ E = pa
-+ b
.'1. Local priccs 01' tradable goods satisfy ali afLer- tnrifI law of one price:
q= {
Hascel
Oll
-+ T),
if
p.(1-+T)
if
p/ (1
a<A
these requisites, one cnn derive Lhe equilibrinm relationship F:
1. lf li' / fi is much lmver [nu1<,:h higher] than t,he world's raL io ({{ / 11) * ,
onl)' the intermediate ~ood A [El will be produced, as its productioll
uses more intensively the relatively abundant labor [capital]. There are
criticaI leveis
8}
< (J{ / H)* and
,Z2
> (J{ /
ITr sueli that if IC/ H S
then t he country onl;tj produces A, and if K / H ?
only prodnces
n.
with (apitaI share
Z2
81
then the country
'I'hen, Y is a Cobb-Donglas fnnction oI {( and H,
LYi!
[n/i]' Fllrthermore, the criticaI values s 1 anel z'l,
are sen:útive to
T.
In particular, with higher Lariffs the ecoIlomy is less
pronc to specialize, so D"hIDT < O [DzdDT > OL with -s[
as
2. If
-+
O [.?:~
-+
cX,.;]
T -+ 00.
1-:1 II
1S very dose to (K I 11)* a high cnough tariff wi11 makc the
<
:rl
S
thel'e is no Lrade, so a = ./1, b = B. \;Ye have: D:EdDT < O a.nel D:.c'2/DT
>
ecoIlomy noL trade at aU: There exist
O. Also,
Xl -+
O anel
::C'l -+ 00
as
:E1
T -+ 00,
;I:~,
and
\vhile
where
Xl = :E2
if
s[
T =
O.
:3. Ifh,/H is neither too dose llor too far from (lo( /1-1)*, Lhe eCOl1omy wiU
proeluce both intermeeliate goods, yet still Ü'aele. In thosc cases holels
a result analogous to the Fhdor Price Equél.lization Theorem, \vhich
states thaL equilibrium marginal returns of capit.al anel labor are not
sen:-;itive to small wtriations in the fador eudowl11.ent. Wlmt that means
is Lhat tillal output Y is linear in [( anel H wben K I H E
[81,
:Ed
01'
vvhen K/H E [:E2, Z2]'
HeJl(~e,
Lhe eqnilibrium relaLionship frolll T-: anel H t.o l' takes Lhe fonn
n1 KO"H 1
O~I(
F'(K Hlr
,
-
,
J))I =
'''O!a
if K/H <
+ O:lH if K IH
(~
[241('iH1-ci if KIH E
SI
181, ;1;11
[Xl,X2]
where the values Di. are functions of parametel's, anel are afledeel by p anel
T. For a dosed economy it is Lhe case that [:1:1, :X:2)
:=
\Jt+. Con:-;cql1enLly, with-
out trade our l1lodel simply collapses to one with the aggregate production
7
funclÍon F"'(1\", HIT,p)
values of p anel
= Du1 I(ê'H 1 - ct , .a
equal to
"'ret a + (1
- 1) rl"b. For <-111
F is homogcneous of degl'ee one anel continuous in K and
T,
H. Ccncricnlly, F 1S also locally concave and continuously eliITerentiable.:1 .
F i8
elecrea~;ing in
The fac!. that
T
(strictly elecreasing if k ~ [:1:1,
X2]) anel also DF!\ / DT < O.
aF[( / ar < Oimplies that a protectionist Lrade policy carries
as a conscquence a loss in output, given inputs, anel thereforc a 10ss in measured prodndiviLy.
T'he eiTect of r on ouLpuL is not because tariffs appear
directly in <tny of 1;l1e proeludion fllnctions, hn(; rather hecanse tarifIs change
domestic prices in a way that distorts the decisions of produccrs. The1"e are
t\vo reasons \vhy this is so. First, a distorted q inlrodnces an incHiciency
in the allocation of
J{ anel
H betvvcen A anel B, thus reelucing the value of
nation.al produd at international prices. Second, the same price distortion
causes an illeíIiciency in the choice of a anel b by Y-producers.
'file thüxet.icnl e[Técts of t.aritTs on outpnt are iHusLmted in Figure 1, for
the case vvhere
3U
T
T
= () and
r =::: ().~i, respectively.
.> O )2;lobal concavi1y anel continuous differetltiability is lost becau"e FI( has
diserete variatíons (l1p
Ol'
elown) at the criticaI yalnes 8, and cc,. See Ferreira anel Trejos
(200G) for a proof oi" this resulto
1.7S
1.S
1. 2ó
0.75
o.s
Q.25
4
Figure 1: Prodndion fundiom; when T=O anel
T
= 0.3
Note that., gIven K/ H, the open econom~T unambiguously obt.ains more
output as F(IC I1IT > O) iH everywhere below F(I.;,', BIT = O). T'his means
that in thÍs n1.odel, everything else eqnals, larger barriers to trade imply
smaller prodnctivit,y. Moreover, the larger
T,
Lhe larger Lhe disLance bct,ween
F(IC HIT > O) anel F(K, HiT = O), givcn K anel H. Note also Lhat 1,he1"e
is all interval [:r] , T2l where the curves coincide. In this sense, the model
predids that t,hc costs of protectionism for econornies dose Lo the lcadcrs is
either null or very small, vvhich is what one conld expect from a model in
wbich trade iR driven by eornparaLive advant,age.
We perform level-accolUlting exercises for a variety oi" countrics, to see
whaL frnct,ion oI the Lotéil fador prodndiviLy reRidnnI LhaL one mensures
usíng a dosed-economy fn.nnevllOrk c<tn ac1,ually he aLtribnLcd to the ineftlciencÍes associated with protectionist trade policy. In this sense ours is a
staLic exercise of thc costs of t.rade bnrriers. It is st,atic becanse 'Vve ig110re Lhe
impact of i hese balTiers on capital accuIlllllation anel hellce on grO\vth anel
income levds in the future. As ".Te have SbO\Vll in our previous paper, t,his
10ng 1'un
ourselves
efj;{x~t
t()
of protcctionism policy can be sÍzable. Howcver, \ve 1'esLrict
the
foll(n;vin~
lnClus/Ui)
decomposition cxercise:
In (F(k;, hilnTs))/ ln(F(k;, h;IT l
))
+
ln (F(ki1 husITus))/ln(F(k j , hjITCS))
+-
In (F(k u ,5, husITUS))/ ln(F(ki , hos,ITus))
+
ln((yus/ F(kus, liusITUS))/(y,:/F(ki , hiIT,:))),
where y and k stanel for ouLput per worker anel capital per worker, respectively. By
,~:onstrudion,
the snm in the right hanel size has to he eqnal to
the left hand sÍze. 'rhe latt.er is the ratio of US GDP per worker to
COU11-
Lry i's GD1) per 'worker. The lirsL expression to thc right is the portioll of
GDP diHel'f'.llce explained only by tariffs. vVe use our production function
to measure cHltpnt, \vith the respective factors 01' prodndion, bnt we give
to eountry; the tarifIs observecl in the USo Thc second expression gives the
residual diflérence 01' output - artel' accOlmting for trade poliey - expIained hy
hllman capital dispariLies. The third expresslon gives l.he residual dilTerence-
aftel' accoullting for trade and educational disparities- explained by physical
capital. Th" expression in the very bottom is Lhe residual TFP elitIercnce, iL
is that part of TFP disparity which is not explainecl by tracle policy.
10
3
Data and calibration
To assess h, we use a standard Mincer function of schoolillg, 01' the fOl'ln
h = e08 . Follmving Psacharopoulos (199/1), we set. t-he return of schooling
to
q)
=::
0.099. \!Vc used data
OH
the average edllcational atlainment
01'
1.he
population aged 15 year8 and over, takell from Barro and Lee (2000)4.
\!Ve use the Penn-\Vorld Tnblet'i (PWT) dala for output per workcr. The
physical capital series is construded with real investment. data from the
P\!VT' usÍl1g the PerpetuaI Inventory l\Jethod. 'lhe inibal capital stock, ]{o,
was approxÍmated hy ](0 =
Io/[(l + .17)(1
+- 17,) -
(1 - â)], where lo Ís the
initial investmenL expenditure, 9 i8 the rate of technological progress and
n
18
Lhe growth raLe oI' the populaLion.
In t,his calculaLion it is assmned
that alI economies were in a balanced gTOIvth pat-h aI, time zero, so that
j
j
L_j = (1 -+
(1 -+lo·
nr-
gr-
\Ve use thc same depreciation rate for alI economies, which was calculated
from lJS data. \!Ve employed the capit.al slock a1. market Plices, invcst.ment
at Inarket prices, I, as well as the law of lllOtioll of capital to estimat.e the
implicit. depreciation rate according to:
From this calculation, wc obtaincd â = 3.5% per year (average of the 19502000 period). To minimize Lhe impact of economic Dllctna1.ions we uscd the
average investment of the first fíve years as a mcasure of lo. \!Vhen data was
availnble we starLed this procedure taking 1950 as 1,he iniLial. year iH mder Lo
reduce the efied of I(o in the capital stock series.
4 Data
,vere interpoJated (in levels) to fit an annual frequency when necessary.
II
Trade pnlicy is assessed with many alternalive data sources. '\Te flrst uscd,
for i,he mid 19(;0's and mid U)80's, data from individual country studies. In
Lhe finlt ca3e we nsed data from Balassa (1971) which constrnded, for a
very limited number of countries, series of efIective rate 01' protection. For
tbe seeond period we nsed data from Feneira anel Rossi (2001)
ror
Braz i! ,
Gonzalez-Vr~ga auel l\10nge (1995) for Costa Rica, Harrison (1994) for Ivory
CoasL, anel vVorkl BalJk (Um3) for Tbailand. In 11.11 cases these mensures 01'
proted;ioni~m
\vere converted into T-equivalent terrns. vVe also Hsed \\Torld
Bank(200G) data on avcrage tariff rates (unweighted). Althongh nominal
tariff is a 'worse rneasure of protedionisnl than efTeetive raLe 01' proteetion, in
the presellt case it has the advantage of being available for a large number
01' connLries.
We interpret the large economy in steady state to be the U8; hence, we
replicaLc Lhe standard calibration of tbe AnlCl'ican economy in dosedRBC
models USil!.g f(k) ~= [Llkü.
FoUowing NIPA figures for capital's sharc in
l1RtÍonal income, we also match ê'f
leaves frecduHl in choosing
impodant,
HS
'''y', Ct a
1/3 This pins down the average
=
and
O'/J.
Q,
but
These parameters are particularly
the quantitative effects of aU trade-l'elated phenomena, for low
k, are bound to bc larger with a big spread
(li/) ----
na, anel with a lower i,
given Q. If bot-11 industl'ies requirc very different capital labor raLios, there
is nmch to he gained from trade, as each cOlUlLry can specialize strongly on
the industr.\- whosc demand is dosest to their endO\vlnent. We choose
(V(L)
C1!b
anel i so that expol't.s cannot amount t.o more than hal1' ot' output, anel so
tha!', for
~m\r
one 01' Lhe 20 richest eonntries in the world in laRG, the LotaI
gaius t'rom Lracle (the clifference between
12
T
= ex) anel
T
= O) are
ê1,t most 1%
of toLal outpUL. This leads to ,../
= 1/2,
eLa
= 0.258
anel Ob = OAOS. Hesnlts
are robust to varÍatíons of these values within rcasonable bounds.
4
Results
"Ve find that for many countries the effect of trade polícy ís negligible, because
they have low tarifIs, 01' because they are relatively wealthy compared to Lhe
USo Similarly, for many extremely poor countries, the eflects of tarifis are
large compareci to their own lo"v income, but only
fi.
very smaU fraction of
their productivity difference with respect t.o the US, which is also very large.
Ncvertheless, for some middle inconw economies with high tariff ratcs, Lhe
effects are significant; in some cases, enough to at.trihute to protectionism
one thircl of t;heir TFP disaclvant.age,
01'
more.
Tablcs 1 anel 2 show eompariSOl1Swith Lhe lJS for some cOlLnLries in Lhe
mid 1960's and mid 1980's. The column labellecl li shows log-diflerences in
output relRtive to Lhe tiS, anci the columns labelleel
8,
k,
7
and 8 are the
portioll of those log-differences t.hat cau be at.tributed to schooling, capit.al,
protectionism anel produd,ivit,y, respectively. They should, of course, adel up
to the value shown in column li, as saicl belore. The last
COIUlIlll
measures
the proportion of t.otal residual (7 + 8) explained by tariff dístortions aloue.
Table 1: Differences in output relative to t.he US, mid 1960's
y
S
I"
1..
,
8
,/(T+8)
Chile
1.15
0.207
0.336
0.OG8
0.5,12
11.1%
Bn'czil
1.18
0.326
0.497
0.058
0.299
16.3(/;)
Pabstan
2.79
0.431
l.'ct61
0.027
0.870
3.1%
Philippines
1.13
0.249
0.9H
0.022
O.GO'!
d.d/o
y
..,
k:
,
8
,/(, + 8)
') r'O'1
-----------------------------------------------------------------------------------------------------------------------------------
Costa Rica
1.25
fJ.:329
0.66
0.04:3
0.216
lG.5%
Brazil
1.07
0.'135
0.438
0.077
0.121
38.8%
Ivory Coast
2.62
0.46
1.81
0.061
0.287
17.0%
Th"jla,nd
2.()Ll
0.339
0.793
0.0:32
0.871
L7~;{)
\Vé ean see that pl'oductivity 108s due Lo tarifls is significanL in SOlne
cases, especially for the middle-income eonnLries. In Brazil in the 1980's,
T
explains ahnoRt ,10% oi' the TFP diflerence 'ivith respect to the lTS, vvhich is
llot surprising as Brazil in Lhe period was one of the closest eeonomy in Lhe
"vorld. In other cases as Costa Rica, Ivory Coast anel Chile in the 1960's,
protection also have relatively large etTects
011
prodllctivity gap.
or coursc, it
carmot explain the bulk of per worker income difference in a given lllmnent,
but the
en~'ct OH
TFP is sizable.
Table 3 bdow presents results also for mid 1980's now l1sing \iVorld Bank
data on aVt'l'il,ge tarifI rates. AR saicl before, this serics lIas the advantage 01'
being available for a large munher
or countries.
Table :3: Diíferences in output rclative to l,he US, mid 1980':-;
(World Bank tariff data)
+ 8).
y
.s
k
..,,
8
Argentina
0.66
0.2 L1O
0.2/fLl
0.007
0.172
,1.1%
Banglade:-;h
2A4
0.50G
1.001
0.054
0.885
5.8%
Brazil
1.07
0.'1:31
0.'138
0.018
0.18·c!
9.1 C;~)
Colombia
1.24
0.372
0.512
0.012
0.:345
3.2%
India
2.59
OA26
1.069
0.0;52
1.041
~1.7%
Mauritius
1.:3G
0.330
0.575
0.012
0.,,140
2.6%
Mexico
0.70
0.:340
0.287
0.004
0.074
5.1%
Pakistan
2.27
0.505
0.9 l:3
0.0:36
0.785
,1.'1%
Tnnisia
1.12
OA42
OA74
0.007
0.203
:3.1%
Venezuela
0.85
0.:319
0.:3:39
O.OOU
0.187
·'1.5%
L
T/(T
.
.
The countries above were purposely chosen due to the larger effect of
T. However, even m these cases Lhe impaeL of trade barrlcrs were noL 1,00
sizable. Only in Brazil it explains something dose to 101)() 01' the TFP gap.
In other cases, sueh as Bangladesh,
tariH~"l
~I'Iexico
anel Incha, the observcd average
\vere Lhe cause 01' 5% of the TFP difierence. l'dost. of the rclevant cases
were Inidle-income economies in Latin America and Asia, in which measured
tariffs "vere higher. In aU OECD countries, as expected, t11e impad was dose
to zero: trade clue to compara tive aclvantage is not the main reason for them
to trade, so 1,hat ou1' rnodel cannot capLnre thc cos1, 01' Lrade harricl"s. In vcry
poor economies the measured impact was also small.
There are Lwo reasons we ca.Il conjeeture for the impact of T t.o bc relat.lve
snlall in the above table, although llot irrelevant in mau}' cases. One is that
15
•
this mensure under-estimate the degree of protection. For iwstance, it does
1101, take inlo accOlmt the fact that in the mid 1980's non t.rade barriers such
as cotas, li(:ensing
01'
outright ban on the import of specific prodncts were
\'lideiy used anel 1110st probably were more important for trade protection
1,ha11 tariffs, J:n t.he llrst two tables those fa.dors \vere taken into aCcollnt, at
least partially. Moreover, even the tariffs in the World Bank data set seems
too low. F'elTcira andllossi (2003) sl1mv Umt in Brazil, in Lhis period, avcrage
tarilT was doser to 100%) than 47%, the mnnber in lhe vVorld Bank database.
Ir we redo t he above exercise usíng the formeI' value ínstead of the later, we
find that
T
i8 nhle lo explain almost 30% of the TFP gap. Moreover, inslead
of onIy expIainillg 2.2%, of the output per worker difIerence with respect to
the D.S., it now explaius 5.8%. Ir t.his is a general pattern of ta1"i[[· undermeasnrelnent,
re~mlt.s
in Table 3 would be very diiferent.
A second possible reason for lhis resuU is Lhe fact that we were usmg
very conservative calibration, one that tends to reduce the gains from trade.
So itmight be the case that for diHcrent. values of
those that
:lncreasf~
00.
and
C'Ib -
particularly
Lhe difIerence heb;veen lhern - we came up wilh larger
TFP losses. This, however, is not the case unless we use very unreasonable
pararnet.er \'1:1111es. Fbr instance, wit.h
that still generate ("0
=
00.
and n:b equal to 0.2 anel OAG7 (valnes
1;:3)), T would explain 4A%, 6A% anel 10.1%, of TFP
difrerence of Argentina, Bangladesb anel Brazil, respedively. Those
w~1ues
are very dClse to tho8e displayed on Tahle :3.
Finally, results when nsing 2000 data. found that in almost no case the
ejTect of
T
i'l far from zero. In this case barriers to trade were found to bc
irreleva.nt as most conntries experienced major trade liberalization after the
mid 1980's. CHUCUUy, protection i8 focnsed in fcw, albciL key, sectors bnt
this does not show up in the data among othc1' reaSOll:::l because tariH" is not
the maln illstrumcnt u:sed. This is ln accord "viU1 Hodrik (77) LhaL i-U·gllCS
that the gains from the current trade negot.iations, in tcrms of outpnt, are
probably suml1 as most cconomies a.re now relaLively
OpCIl.
\Ve can also e:stiniate t-he output C08t 01" barriers Lo trade. \Ve use the
foHowing fonnula:
In this expression, ''.Te re-estimaLe country i ouLput with tiS tarifI in pInce
of its own. It gives the measured gain 01" output if country i had its observed
factor:-; of procluction but American tariffs. The gaills, in perccntage terms,
are presenLed below
17
•
Thble Li: Outpnt gains frorn "lrade" refonn
Yin
Mid 1980's
I"
.YIT*
Chile
G.9%
Costa Rica
4.:3%
13razil
5.8S1;)
Brazil
7.6%
Pakistan
2.7%
Ivory Coast
6.2?1()
Philippines
2.1~~1
Thailand
3.2%
l\1íd 1960's
According; to Table 4, Brazil
if its eflective mte
01'
lU
the eighties v!Ould be 8 percent richel'
protection \vere considerably smaller. Although no!'
enongh to dose t.he gap to the US OULpllt. - GDP per \vorkel' of Brazil was
one third 01 that of lhe US in Lhe perioel - this is no small mnnber. Like,vise,
fig11res for Chile, Ivory Coast and Costa Rica \vere relevant. In these cases
Lhe static gain 01' eliminaLing lmrriel's to trade would increase hy 5S'{)
01'
rnore
outpu1. per vlOrker. 01' course, as we could expect given 1'esults of T,'1.b1e 3, the
rneasure gains nsillg World Bank dRta are smaller. For the OECD countries(1,8
a matter
01'
fact, for a majority of countries - the estimated gains are dose
t.o zero. However, in t,hose cases ívere average tarijIs \vere relatively large,
such as Bangladesh anel Indin, their reduction to US tariff leveis would imply
gains of 5% 01' per wOl'ker GDP.
5
Conclusion
In 1.his papel' \ve presented evidence tha1. barriers to I.rade were impOl't.an1.
fador impairing lhe Pl'Odllctivity o[ less developed countries in the recent
pasto In some cases it explained a sízable parI. of TFP dífference wiLh respect
to Lhe leadillg cconomy. l\!Ioreovel', Lhe onLput cos(,
18
ma)r
also he l'elevant.
,
The ütd that in mauy cases Lhe cosI, of trade halTiel's were estimaLed to
he sIllall may be either an indication of data. problems, \vhich are \vell know
in the trade lield - larifr is not aIways a precise mensure of baniers to trade
- or may reHect the fact lhat protectionislll is not too hannflll nowadays. 01'
Um,t an ag,g,TegaLe model sl1ch as
OUI'::;
are no!' abJe Lo capture the l"nll eHed of
sophisticate protection measures v/ideIy useel today, such as export subsidy
OI'
anti-duping mensures.
The methoelology we use does not capture lhe ütcl that barriers to lraele
elo afiect investment decisions anel so capital stocks, son1.ething \ve have shown
in onr previous paper (H~lTeira anel Trejos (200G)). In this sense, lhe current
exercise is limiteel as it takes stocks as given but does not consieler lhat, if
it. were noto for lrade restrictions, they would be cOllsidenl,hly la.rger. llence,
re;omlts hcre can be seen as a lower bounel of the eosts 01' banires to lrade.
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BIBLIOTECA MARIO HENRIQUE SIMONSEN
,
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21
FUNDAÇÃO GETULIO VARGAS
BIBLIOTECA
ESTE VOLUME DEVE SER DEVOLVIDO A BIBLIOTECA
NA ÚLTIMA DATA MARCADA
N.Cham.
P/EPGE SA F383m
Autor: Ferreira, Pedro Cavalcanti.
Título: Measuring the TFP costs of barriers to trade.
385151
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102443
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