On the Link between Trade Liberalization and Firm Productivity: Panel Data Evidence from Private Firms in Ghana

Abstract

The private sector is deemed as an engine of growth. As such, many developing countries including Ghana have sought to develop the private sector to propel the growth of their economies. This notwithstanding, much has not been done to examine the effects of such efforts on the productivity of firms in relation to trade reforms in the context of the private sector. This paper contributes to the trade literature by examining how tariffs affect the productivity of manufacturing firms in Ghana’s private sector using firm-level data from 1991 to 2001. In the first step, productivity is estimated via the Levisohn-Petrin approach in order to correct for the well-known simultaneity and selection biases. In the second step, the effect of tariffs on the derived productivity is analysed. The findings suggest that lower tariffs are associated with a decline in the productivity of Ghanaian private firms in the manufacturing sector.