Trade policies, enterprise characteristics and technological effort in developing countries

This paper examines whether a developing country's import restrictions are likely to increase or decrease the technological effort of its enterprises. The analysis incorporates a profit incentive effect, which induces an increase in output and technological effort of the protected enterprises, and an opposing X-inefficiency effect. The paper shows that the relative importance of these effects may differ between industries and also between enterprises in the same industry, depending on the nature of their products, their size and other characteristics. Consequently import restrictions may increase the technological effort of some enterprises, but have the opposite outcome in some others.