This paper reviews research that uses longitudinal microdata to document productivity movements and to examine factors behind productivity growth. The research explores the dispersion of productivity across firms and establishments, the persistence of productivity differentials, the consequences of entry and exit, and the contribution of resource reallocation across firms to aggregate productivity growth. The research also reveals important factors correlated with productivity growth, such as managerial ability, technology use, human capital, and regulation. The more advanced literature in the field has begun to address the more difficult questions of the causality between these factors and productivity growth.

I discuss the concept and empirical importance of intemational technology diffusion from the point of view of recent work on endogenous technological change. In this literature, technologyis viewed as technological knowledge. I first review the maj or concepts, and how intemational technology diffusion relates to other factors affecting economic growth in open economies. The following main section of the paper provides a review of recent empirical results on (i) basic results in intemational technology diffusion; (ii) the importance of specific channels of diffusion, in particular trade and foreign direct investment; (iii) the spatial distribution of technological knowledge, and (iv) other issues.

This paper proposes a new model of the link between expanding trade and rising wage inequality in developing countries, and investigates its causal implications in a newly constructed panel of Mexican manufacturing establishments. In a theoretical setting with heterogeneous firms and quality differentiation, only the most productive firms in a developing country like Mexico enter the export market, and they produce a better-quality good for export than for the domestic market in order to appeal to richer developed-country consumers. Producing high-quality goods requires paying high wages both to white-collar and to blue-collar – but especially to white-collar – employees. An increase in the incentive for developing-country producers to export generates differential quality upgrading within industries, as more-productive firms increase exports and produce a greater share of high-quality goods, while less-productive firms remain focused on the domestic market. This process raises wage inequality both between firms and within the firms that upgrade. The empirical part of the paper uses a major exchange rate shock – the Mexican peso crisis of late 1994 – to test this causal mechanism. I find robust evidence that during the years of the crisis initially more-productive plants increased both white-collar and blue-collar wages and

By relaxing the assumption of perfect competition, the “new” trade theory has generated a rich body of predictions concerning the effects of commercial policy on price-cost mark-ups, firm sizes, exports, productivity and profitability among domestic producers. This paper critically assesses the plant- and firm-level evidence on these linkages. Several robust findings are identified. First, mark-ups generally fall with import competition, but it is not clear whether this phenomenon reflect the elimination of market power or the creation of negative economic profits. Second, import-competing firms cut back their production levels when foreign competition intensifies, at least in the short run. This suggests that sunk entry or exit costs are important in most sectors. Third, trade rationalizes production in the sense that markets for the most efficient plants are expanded, but large import-competing firms tend to simultaneously contract. Fourth, exposure to foreign competition often improves intra-plant efficiency. Fifth, firms that engage in international activities tend to be larger, more productive, and supply higher quality products. However the literature is mixed on whether international activities cause these characteristics or vice versa. Finally, the short-run and long-run effects of commercial policy on exports and market structure can be quite different. Both types of response depend upon initial conditions, sunk entry costs, and the extent of firm heterogeneity.

Most economists accept that, in the longrun, open economies fare better in aggregate than do closed ones, and that rela-tively open policies contribute significantly to development. Many commentators fear, how-

This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to those on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1 percent, whereas an equivalent fall in input tariffs leads to a 3 percent productivity gain for all firms and an 11 percent productivity gain for importing firms.

This paper explores Colombian trade policy during 1977-1991, a period of substantial variation in protection across industries, to examine whether increased exposure to foreign competition generates plant-level productivity gains. Using a large panel of manufacturing plants, we find a strong positive impact of tariff liberalization on consistent productivity estimates, controlling for plant and industry heterogeneity. This result is not driven by the endogeneity of protection nor by plant exit. The impact of tariff liberalization on productivity is stronger for large plants and for plants in less competitive industries. Qualitatively similar results are obtained when using effective rates of protection and import penetration ratios as measures of protection.

Do scale economies contribute to our understanding of international trade? Do international trade flows encode information about the extent of scale economies? To answer these questions we examine the large class of general equilibrium theories that imply Helpman-Krugman variants of the Vanek factor content prediction. Using an ambitious database on output, trade flows, and factor endowments, we find that scale economies significantly increase our understanding of the sources of comparative advantage. Further, the Helpman-Krugman framework provides a remarkable lens for viewing the general equilibrium scale elasticities encoded in trade flows. In particular, we find that a third of all goods-producing industries are characterized by scale. (The modal range of scale elasticities for this group is 1.10-1.20 and the economywide scale elasticity is 1.05.) Implications are drawn for the trade-and-wages debate (skill-biased scale effects) and endogenous growth. (JEL F11, F12, D2) Over the last 20 years, general equilibrium models of international trade featuring increasing returns to scale have revitalized the international trade research agenda. Yet general equilibrium econometric work remains underdeveloped: it has been scarce, only occasionally well-informed by theory, and almost always devoid of economically-meaningful alternative hypotheses. There are exceptions of course. These include Helpman (1987), Hummels and Levinsohn (1993, 1995), Brainard (1993, 1997), Harrigan (1993, 1996), and Davis and Weinstein (1996). However, this list is as short as the work is hard. The complexity of general equilibrium, increasing returns to scale predictions has deflected empirical research of the kind that is closely aligned with theory. Surprisingly, one empirically tractable predic...

Stanford University, and the World Bank for their helpful comments and suggestions and Bill Maloney for help using the ENAMIN data. The views expressed here do not necessarily reflect those of the World Bank or its member countries. 1 Recent theoretical literature in development economics has shown that non-convex production technologies can result in low-growth poverty traps. This paper uses detailed microenterprise surveys in Mexico to examine the empirical evidence for these non-convexities at low levels of capital stock. While theory emphasizes non-divisible start-up costs which exceed the wealth of many potential entrepreneurs, this paper shows start-up costs to be very low in some industries. Semi-parametric methods are then used to flexibly estimate returns to capital in microenterprises. Much higher returns are found at low levels of capital stock than at higher levels, and this remains true after controlling for firm characteristics and measures of entrepreneurial ability. Overall, little evidence of production non-convexities is found at low levels of capital. The absence of non-convexities is a significant finding because it suggests that access to startup capital does not determine the ultimate size of the enterprise.

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