Tariffs, productivity, and resource misallocation
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Tariffs, productivity, and resource misallocation. / Kilumelume, Michael; Morando, Bruno; Newman, Carol; Rand, John.
2021. p. 1-29.Research output: Working paper › Research
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TY - UNPB
T1 - Tariffs, productivity, and resource misallocation
AU - Kilumelume, Michael
AU - Morando, Bruno
AU - Newman, Carol
AU - Rand, John
PY - 2021/11
Y1 - 2021/11
N2 - An often-neglected potential negative consequence of tariffs is the impact they may have on the misallocation of factor inputs. Trade protection can provide space for domestic firms to increase prices and mark-ups, allowing low-productivity firms to survive, thereby leading to a sub-optimal allocation of resources. This paper explores the impact of tariffs on the allocation of capital using administrative data from South Africa. We find that tariffs are highly correlated with capital misallocation, leading to aggregate productivity losses of 5–10 per cent. In particular, tariffs are strongly related to distortions that are correlated with firm productivity. The main channel through which tariffs distort the allocation of capital is through the protection they offer to lowproductivity firms, reducing their probability of exiting and increasing firm survival.
AB - An often-neglected potential negative consequence of tariffs is the impact they may have on the misallocation of factor inputs. Trade protection can provide space for domestic firms to increase prices and mark-ups, allowing low-productivity firms to survive, thereby leading to a sub-optimal allocation of resources. This paper explores the impact of tariffs on the allocation of capital using administrative data from South Africa. We find that tariffs are highly correlated with capital misallocation, leading to aggregate productivity losses of 5–10 per cent. In particular, tariffs are strongly related to distortions that are correlated with firm productivity. The main channel through which tariffs distort the allocation of capital is through the protection they offer to lowproductivity firms, reducing their probability of exiting and increasing firm survival.
KW - Faculty of Social Sciences
KW - tariffs
KW - productivity
KW - misallocation
KW - South Africa
U2 - 10.35188/UNU-WIDER/2021/114-3
DO - 10.35188/UNU-WIDER/2021/114-3
M3 - Working paper
T3 - UNU WIDER Working Paper Series
SP - 1
EP - 29
BT - Tariffs, productivity, and resource misallocation
ER -
ID: 291607248