Trade , Technology , and Productivity : A Study of Brazilian Manufacturers , 1986-1998

Brazil’s trade liberalization programme between 1990 and 1993, and its partial reversal in 1995, are used to study how trade affects productivity. The production function of Brazilian manufacturers is estimated at the SIC two-digit level, using an unbalanced panel of medium-sized to large firms between 1986 and 1998. Estimates of factor intensities and total factor productivity are obtained through a three-step procedure first proposed by Olley and Pakes (1996). To address limitations, the procedure is based on an extended structural model. Empirical analysis suggests that (1) improved access to world-market inputs has played a negligible role for productivity change, whereas (2) competitive pressure induced firms to improve productivity strongly. In addition, (3) the survival probability of inefficient firms fell with trade liberalization, thus contributing positively to aggregate productivity. JEL F14, F43 ∗muendler@econ.berkeley.edu (URL: http://socrates.berkeley.edu/ ̃muendler/). I thank Wasmália Bivar and her team at IBGE ’s Departamento de Indústria, Rio de Janeiro, for their support and patience in providing access to the data. Pranab Bardhan, Daniel McFadden, Maurice Obstfeld, and David Romer advanced the project with valuable insights. I am grateful to seminar participants at PUC and IBGE Rio de Janeiro, IPEA Braśılia, and UC Berkeley, for many helpful suggestions at various stages of the project. Honório Kume, Roberto Olinto, and Mauŕıcio Mesquita kindly shared data on tariffs, market penetration, and prices. I gratefully acknowledge financial support from the Social Science Research Council and the American Council of Learned Societies with an International Predissertation Fellowship (funded by the Ford Foundation).