Essays on Trade and Productivity: Case studies of manufacturing in Chile and Kenya

Abstract

This thesis deals with various aspects of the relationship between trade and productivity in developing countries. It contains of a general introduction and four separate essays. The essays consist of case studies of the manufacturing sector in Chile and Kenya. The export promotion hypothesis suggests that exports and export policy play a crucial role in stimulating growth. The role of import competition in providing similar benefits has to a large extent been absent in the literature. Essay I contributes to the ongoing debate on trade and productivity growth by examining the existence of a causal relation running from trade and domestic competition to productivity growth in Chilean manufacturing. The results suggest that the Chilean productivity growth during the period 1980 to 1991 was import-led rather than export-led. Essay II examines whether the higher productive efficiency among exporting plants in Chilean manufacturing is a result of learning or self-selection. A method to calculate deviations from potential productivity, referred to as total factor efficiency, using a translog production function is proposed. We found no significant differences in total factor efficiency, technical efficiency or scale efficiency between plants with either a long or a short export history. Plants just prior to the start of exporting are significantly more productive than plants that remain out of the export market. This suggests that relatively efficient firms self-select into the export market. Essay III investigates the link between efficiency and exports in Kenyan manufacturing. Like many similar studies we find that exporters are more efficient than non-exporters. The analysis supports that relatively efficient firms self-select into exports activities, but we also find some evidence in favour of learning from exports. Our results provide no evidence for the hypothesis that trade direction influences either the export effect on technical efficiency or the efficiency effect on exports. However, while the probability to export to other African countries increases with physical and human capital intensity, firm size appears more important for export activities outside Africa. Essay IV investigates the technical efficiency of foreignand domestic-owned plants in the chemical sector in Chile. The model combines a stochastic frontier production function in which technical inefficiency effects are modelled in terms of ownership and input level. The results indicate that the higher average inefficiency observed among domestic-owned plants stems partly from the inefficient use of capital. Increased use of labour inputs improves technical efficiency for domestic-owned plants, while increased uses of capital reduce efficiency. Thus, the shift towards more capital-intensive production techniques in Chile, following the trade liberalization, may have brought adjustment costs in the form of reduced technical efficiency. Acknowledgements First, I would like to thank my supervisor Arne Bigsten. I am indebted to him for his guidance and continuous support during the work with the thesis as well as for always having time for constructive advice. I also owe much to Renato Aguilar, who introduced me to the world of stochastic frontiers, helped me with data collection and with necessary contacts in Chile. Thanks also to Lennart Hjalmarsson for careful reading and constructive comments on a draft of the thesis. I am deeply grateful to Anders Isaksson, co-author of the third essay, for stimulating co-operation, fruitful discussions, and excellent comments also on the other parts of the thesis. I would also like to thank Hans Bjurek for endless and, believe it or not, fascinating discussions on the properties of non-homothetic production functions. Besides sharing his expertise on this subject and on other aspects of production theory, Hans also has provided insightful comments on various parts of the thesis and provided help with the DEA computations in the third essay. I am thankful to a large number of persons who have contributed to this thesis by reading different parts and delivering valuable comments to me. These persons include: Svein Agnarsson, Daniela Andren, George Battesse, Dick Durevall, Anders Gerdin, Almas Heshmati, Steve Kaizzi-Mugerwa, Karin Kronlid, Jorgen Levin, Karl Lundvall, Mans Soderbom, Ann Veiderpass, Rick Wicks and Jinghai Zheng. I would also like to thank Eva-Lena Neth-Johansson and Eva Jonasson for always being helpful and encouraging. Lee Wohlfert proof-read this thesis. I thank her for putting up with this. Financial support from SAREC and Jan Wallander Research Foundation is gratefully acknowledged. Last but certainly not least, thanks to my family for being there for me. Magnus – here is a further contribution to your collection of “fact books”.

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