Research On Firm-Level Input Quality-Upgrading,Productivity,and Employment From Input-Tariff Reduction

This essay examines the impact of input tariff reduction measures in changing firms’ input importing,input quality-upgrading and link the impact on firm productivity.Further,it examines the impact of input tariff reduction on firms’ product scope and employment.The essay comprises seven chapters.The first chapter introduces the research motivation,the main research questions and data sources.The study aimed at answering the following research questions: does input tariff reduction contribute to firms’ import intensity and input quality upgrading,and further link to firms’ productivity improvement? Does input tariff reduction affect firms’ product scope and firms’ employment? Panel data from Ethiopian Manufacturing Census Survey which was collected by Ethiopian Statistical Agency over the period 1996 to 2016;and the corresponding tariff data from World Integrated Trade Solution(WITS)are matched and used in attempt to answer the research questions in this study.The second chapter provides the related literature reviews while chapter three articulates and provides the theoretical mechanisms.Chapter four furnishes the basic analysis of the manufacturing sector and the external sector with evolution of trade reform of the economy under study.Chapter five outlines the empirical model,estimation approach,and estimation procedures.Chapter six delivers the descriptive analysis from main data set,the empirical analysis and results.The empirical analysis is made in two divisions.The first part of empirical analysis start by testing the impact of input tariff reduction on firms’import intensity,and it further analyzing the impact of input tariff reduction on firms’ input quality upgrading and productivity: evidence from Ethiopian Manufacturing.The availability of detail statistical variables enables empirically examining and attempt answering the research questions.Accordingly,firm-level productivity is estimated using Levinsohn and Petrin(2003)approach which controls for simultaneity bias;and estimate input quality using Khandelwal et al.(2013)approach but to the import side.Then,I estimate the impact of input tariff on firms’import intensity;estimate the impact of input tariff on firms’ input quality.Finally,I estimate impact of input tariff reduction on productivity through imported input quality-upgrading channel progressively step by step controlling possible explanatory variables with bootstrapped standard errors.I find results that suggest a reduced input tariff is associated with increased in import intensity and firms’ input quality upgrading;further,it is associated with improvement in firms’ productivity with quality upgrading channel.Moreover,the effect of tariff cut is more pronounced for input importing firms which implies that the effect of input tariff cuts benefits firms import input more intensively than others.The second part focuses on analyzing the impact of input tariff reductions on product scope,and employment.The objective here is to assess the impact of input trade liberalization on firm product scope and employment.I use panel data of selected sub sectors of manufacturing firms from the Ethiopian manufacturing census over the period 2000 to 2016,and panel data estimation techniques such as System GMM are employed;FE and OLS also shown up for comparison.Results suggest that a reduction in input tariffs increases firm-level product scope;and firms’ participation in international trade has also a positive impact.Moreover,firms that expand their product scope tend to employ more.Further,input tariff reduction helps firms to increase employment however with different impacts for exporter and importer.Lastly,the seventh chapter concludes and provides general policy implication of the thesis.