Trade liberalisation and productivity: A panel study of the Mexican manufacturing industry

In recent years there has been a revival of interest in the trade-growth nexus. A number of authors have suggested that regional economic integration and liberalisation of international trade are likely to have positive effects not only on productivity levels but also on long-term productivity growth rates in developing countries. Using a panel of Mexican manufacturing industries, this article examines several alternative mechanisms through which trade contributes positively to productivity levels and growth rates. Special attention is paid to the comprehensive trade liberalisation policies implemented in Mexico after 1986. The results indicate that productivity growth is significantly correlated with the share of imported intermediate inputs in sectoral output. Reductions in rates of protection are found to have significant positive effects on sectoral productivity levels. The estimates also suggest that after liberalisation the increasing share of exports in total output increased average productivity level by about five per cent. However, the effects of trade liberalisation on long-term productivity growth rates are found to be statistically insignificant.