Who Dies in Developing Countries?: International Trade and Plant Heterogeneity

Abstract

Several studies have found that plant turnover contributes to productivity growth. This evidence is consistent with the idea that, by reducing the protection granted to inefficient firms, trade liberalization generates the productivity gains associated with resource reallocation from less productive to more productive firms. However, little empirical work has been done that directly links trade variables with plant turnover. This paper uses Chilean trade reforms to shed light on the effects of tariff changes on plant exit. Our econometric analysis shows that larger and more productive plants are less likely to exit. After controlling for these characteristics, we find that exit is more likely in tradable industries, and even larger in import-competing industries. Moreover, we find a differential impact of tariff changes. Reductions in trade protection increase more greatly the exit probability for plants in import-competing industries. All of our findings are consistent with resource reallocation occurring within and across industries.