TRADE LIBERALIZATION AND PRODUCTIVITY - A PANEL STUDY OF THE MEXICAN MANUFACTURING-INDUSTRY

In recent years there has been a revival of interest in the trade-grow th nexus. A number of authors have suggested that regional economic in tegration and liberalisation of international trade are likely to have positive effects not only on productivity levels but also on long-ter m productivity growth rates in developing countries. Using a panel of Mexican manufacturing industries, this article examines several altern ative mechanisms through which trade contributes positively to product ivity levels and growth rates. Special attention is paid to the compre hensive trade liberalisation policies implemented in Mexico after 1986 . The results indicate that productivity growth is significantly corre lated with the share of imported intermediate inputs in sectoral outpu t. Reductions in rates of protection are found to have significant pos itive effects on sectoral productivity levels. The estimates also sugg est that after liberalisation the increasing share of exports in total output increased average productivity level by about five per cent. H owever, the effects of trade liberalisation on long-term productivity growth rates are found to be statistically insignificant.