Why Does Industry Productivity Increase When Trade Barriers Fall?

Peter Schott
U.S. manufacturing industries with relatively low trade barriers have relatively high productivity growth. Professor Peter Schott and co-authors Andrew Bernard and J. Bradford Jensen, show that this response driven by a reallocation of plants within industries: as exposure to international trade grows, the least productive plants decline or exit, raising the average productivity of survivors. They also find that plants in industries with falling trade costs are more likely to become exporters, and that existing exporters in these industries increase their shipments abroad.