Trade reform dynamics and technical efficiency: The Peruvian experience

Markets around the world are becoming more competitive because of changing operating and regulatory environments. One such change-the loosening of trade restrictions-is a macroeconomic policy shift that should have a microeconomic impact on industrial efficiency. Specifically, competitive pressure should discipline or eliminate inefficient producers. This article explores whether or not there is such a dynamic link. It uses a previously unexploited data set to gauge the impact of the 1990 Peruvian reform on plant-level technical efficiency. The results support the argument that the degree of protection and the level of efficiency are inversely related.