Trade Liberalisation, Exit, and Output and Employment Adjustments of Australian Manufacturing Establishments

Using Australian manufacturing establishment data from 1993-94 and 1996-97, we study three possible sources of productivity gains from trade liberalisation: the exit of inefficient establishments, economies of scale from output expansion, and reduction in employment. We find weak evidence that establishments in industries with greater reductions in effective rate of assistance are more likely to exit, strong evidence that they reduce employment, and no evidence for economies of scale through output expansion. Thus the productivity gains appear to come more from the pro-competitive effects which forces establishments to reduce their slackness rather than from the exit of less efficient establishments.