Trade liberalization and inter-industry productivity spillovers: an analysis of the 1989-1998 Brazilian trade liberalization episode

Since the 1980s, a common goal of the trade liberalization conducted by developing countries has been to increase manufacturing productivity. The literature has found evidence supporting such an increase in productivity; however, little is known about tariff-induced inter-industry (vertical) productivity spillovers. This paper proposes a new empirical methodology using spatial econometrics, and applies it to the large economy-wide shock represented by the Brazilian 1989–1998 trade liberalization. My results indicate the existence of positive and substantial upstream productivity spillovers. Nevertheless, no evidence of downstream productivity spillovers was found