Trade liberalisation and product mix adjustments: Evidence from South African firms
Theoretical and empirical studies on multi-product firms have shown that firms adjust
their product mix in response to trade liberalisation. This paper uses the South African
Revenue Service (SARS) and National Treasury (NT) firm-level panel to assess the response
of South African firms to trade policy changes and demand shocks in destination markets
between 2010 and 2016. This paper shows that South African multi-product manufacturers
shift their exports towards their core products when competition intensifies in their
export destinations and that these dynamics lead to productivity gains at the firm
level. Also, trade liberalisation policies in the destination country positively affect
the number of exported goods (extensive margin) as well as the average value of already
exported products (intensive margin) for multi-product exporters, whereas restrictive
measures negatively affect the extensive margin. Regarding trade policy measures,
results suggest that tariff liberalisation only amplifies the adjustment of South
African exporters if tariff cuts affect South African firms directly, while tariff
cuts benefitting other foreign competitors mitigate within firm adjustments. By contrast,
the reduction of Non-Tariff Measures (NTMs) always positively affects South African
exporters.
Published on September 18, 2020
In series:OECD Economics Department Working Papersview more titles