Productivity and Trade Orientation: Turkish Manufacturing Industry Before and After the Customs Union

The impact of trade liberalization on productivity and economic growth has received considerable attention in recent policy debate. Besides the theory, there is also a large body of empirical literature on the impact of trade policy reforms on productivity growth. We contribute to this literature by providing evidence on the productivity response to trade barrier reductions for Turkish manufacturing plants. We analyzed plant-level data for 51 four-digit SIC industries spanning the period of 1984-2000, which is a period of significant changes in trade policy. We calculated plant-level total factor productivity, implementing an estimation method developed by Olley and Pakes (1996). An inspection of the evolution of total factor productivity over time suggests that, during periods of the most rapid decline in protection rates, productivity gains are largest. We also found that productivity gains in import-competing sectors are higher than other sectors.