Tariffs and Total Factor Productivity: The Case of Ghanaian Manufacturing Firms

Abstract

This paper investigates the effects of trade liberalization on firm productivity in Ghana. We examine Ghanaian trade policy from 1993 to 2002, a period during which trade liberalization deepened with intermittent protection in a number of ways across industries, to investigate the effects of trade policy reforms and firm productivity. We find a strong negative impact of nominal tariffs on firm productivity, controlling for observed and unobserved firm characteristics and industry heterogeneity, a result that is robust to various alterations of the base model, including treating tariffs as endogenous and employing different estimation techniques. These results indicate that firms that are overprotected have a lower level of Total Factor Productivity than firms that are exposed to import competition. The estimated coefficients on both tariffs and its squared term confirm that higher tariffs are particularly distortionary.

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