Working Paper: CEPR ID: DP16297
Authors: Andrés Rodríguez-Pose; Alexandra Sotiriou
Abstract: This paper explores the effects of import competition on the manufacturing sector in Chile following the implementation of the country’s two largest Free Trade Agreements (FTA) (with the USA and China). Exploiting cross-industry variation in import exposure, we analyse the effects on manufacturing sales, employment and labour productivity at the finest level of industrial classification (4 digit ISIC level). We detect an overall negative effect of increased Chinese import penetration, owing to substitution effects from low and medium tech imports and a less pronounced effect from USA imports. By introducing interaction effects, we find that the levels of foreign ownership and the export intensity of the domestic industries reverse the negative effect due to the opportunities offered via participation in global value chains. An IV strategy is applied to address standard endogeneity concerns and confirm the robustness of our estimates.
Keywords: import penetration; free trade; manufacturing; chile; china; usa
JEL Codes: F13; F14; F16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased import penetration from China (F69) | Negative effect on domestic manufacturing sales (F69) |
| Increased import penetration from China (F69) | Negative effect on employment (F66) |
| Increased import penetration from China (F69) | Negative effect on labor productivity (J29) |
| Higher levels of foreign ownership and export intensity (F23) | Mitigate negative effects of import penetration from China (F69) |
| Increased import penetration from China (F69) | Efficiency gains from cheaper inputs in industries with higher foreign investment (F23) |
| Import penetration from the USA (F10) | No significant negative effects on sales or employment (F69) |