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Trade Liberalization, Rival Exporters and Reallocation of Production: An Analysis of Indian Manufacturing

Employing a difference-in-difference estimation technique on firm-level data on Indian exporters, we show that the removal of US textile and apparel quotas was associated with a relative increase in sales of products where India was previously quota-restricted,  but a relative decrease in sales of products where China was previously quota-restricted.  We hence highlight the importance of accounting for falling trade barriers for rival exporters in analyzing trade liberalization effects. Additionally, we find that previously more productive firms see a greater increase in sales, suggesting potential gains from reallocation in an environment where quota rights were not allocated efficiently.

Working paper 526
1 June 2015
RELATED JOURNAL:

Review of International Economics
23 January 2017
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