Productivity response to reduction in trade barriers: evidence from Turkish manufacturing plants

Abstract

We examine the effects of trade policy changes on the evolution of productivity in the Turkish manufacturing industry. Plant level productivities are estimated for the 1983-1996 period following the procedure of Olley and Pakes. Industry averages indicate that productivity gains are largest in import-competing industries with highest gains reaching 8% per year during periods of rapid decline in protection rates. We find that productivity improvements resulting from declining protection rates are statistically significant and economically important, especially in import-competing sectors. More importantly, productivity improvements due to declining protection rates increase with the plant size.