Abstract
In a developing country, trade liberalization affects firms’ production choices through different channels: intensification of foreign competition, reductions of production factor costs, and enhanced access to foreign consumers and technology. Using firm-level data from India, we investigate how firms with different characteristics adjust their domestic sales and capital accumulation to output and input tariff changes. Our findings suggest that India’s trade liberalization has heterogeneous effects depending on firms’ export, import, ownership status and financial constraints. Firms serving only the domestic market have experienced a contraction of domestic sales and capital accumulation due to import competition. They were not able to benefit from the access to lower costs imported inputs and capital goods. Exporting and importing firms and foreign affiliates have expanded their sales and capital investments thanks to the reduction of imported inputs and capital goods costs and thereby, they have been able to face foreign competition. Our findings also suggest that credit constraints affect the relationship between trade liberalization and firms’ capital accumulation. These findings are in line with recent models of trade with heterogeneous firms.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.