Multilateral Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms by Paula Bustos Discussion by Jens Arnold, OECD Economics Dept, Paris.

Where to put this paper: Empirics Previous findings in the empirical literature on trade at the micro level: Exporters have a productivity advantage, and this is largely due to selection US: Bernard & Jensen 1999 Spain: Delgado, Farinas, Ruano 2002 Italy: Castellani 2003 Germany: Arnold & Hussinger 2005 Chile: Pavcnik 2002 Colombia, Mexico, Morocco: Clerides, Lach, Tybout 1998

Where to put this paper: Theory Theoretical underpinning for Exporting and Productivity in General Equilibrium: Melitz 2003 and Melitz & Ottaviano 2007 Self-Selection based on an exogenous productivity distribution. But: The entirely passive role of the good firms is somewhat unsatisfying. Is it really all just selection based on something exogenous? Think of school.

This paper’s contribution: Theory This paper tries to give a more nuanced answer: Some “good” firms will decide to pay an additional fixed cost for technology upgrading. Will then have lower VC or higher quality product. This is a first attempt to explain part of the black box, while not contradicting the empirical finding of very limited “learning” effects. The effect works through higher quantities/ revenues.

The paper’s empirical analysis Picked the following example: Brazil lowers tariffs for Argentinean exporters upon approaching full customs union (not really multilateral as in the title) Firm-level data set with info about technology use. (Encuesta de Inovación, 1996, 2000) Diff-in-Diffs strategy: Differential tariff reductions across both sectors & time. If this were just about learning, existing exporters shouldn’t be affected.

The paper’s empirical analysis Estimate probability models of exporting and technology adoption, =F(productivity) Principal mismatch between theory and empirics: Productivity Data have only gross output per worker, no other measure of inputs. Both capital and intermediate inputs are completely out.  Risk to mistake a highly capital intensive firm, or a firm with heavy use of external sourcing, as a more productive one.

How good an approximation is gross output per worker for productivity differences within industries? Does this matter? A problem only if there are significant differences within 4-digit SIC industries. Can’t tell in the data used here To get a sense, took all Argentinean firms present in Worldscope data base (not representative sample), years

GO p.w. vs. Labour Productivity Question 1: How much dispersion is there in the ratio of intermediate inputs to output within sectors ? Calculated this in the Worldscope data and purged it of industry fixed effects at the 4-digit SIC level.

Dotted lines indicate inter-quartile range

GO p.w. vs. Labour Productivity Question 2: How does gross output per worker compare to value added per worker ? (VA = GO - wages - intermediate inputs) Purged this of industry fixed effects at the 4-digit SIC level.

Dotted lines indicate +/- 100% of VA per worker

How good an approximation is gross output per worker for productivity differences within industries? I have my doubts. But: these data can only give an indication of what could be a problem. Remedy: Take another data set to provide a better empirical validation of what is a very promising model. Example: Community Innovation Surveys of the EU (though little action on tariffs)

Summing Up A very nice theoretical model. But the empirical validation is patchy. Ideally, one would want to have a larger time dimension: Is technology upgrading lagging export market entry?