Dynamics of industrial productivity in Colombia: Trade policy and public capital

This dissertation explores the dynamics of plant productivity in Colombia's manufacturing sector, providing micro-level evidence on the effects of trade policy and infrastructure.; The first chapter examines whether increased exposure to foreign competition generates gains in plant productivity, considering Colombian trade policy from 1977 to 1991, when liberalization alternates with increased protection in varied ways across industries. Using a rich plant-level panel, we obtain production function parameters across industries, consistent vis-a-vis the simultaneity between inputs and productivity. Plant-level time-varying productivity measures are computed and linked to trade policy. We find a strong negative impact of lagged nominal tariffs on plant productivity, controlling for unobserved plant and industry heterogeneity. The political economy of tariff determination in Colombia suggests that such impact does not reflect the endogeneity of protection. The findings are maintained accounting for real exchange rate variation. Plant exit plays a minor role in generating productivity gains in face of liberalization. The negative impact of trade protection on productivity is stronger for large plants and for plants in less competitive industries. The findings are robust to the use of effective rates of protection and import penetration ratios.; The second chapter analyzes how important infrastructure is for Colombian manufacturing production. Two approaches are followed using regional and time-series variation in public capital between 1981 and 1991 as the source of identification. First, consistent plant-level time-varying measures of productivity are derived from production functions that depend exclusively on private inputs and their relationship with public capital is examined. We find evidence of a sizable role for regional public capital per capita in increasing plant productivity, controlling for unobserved plant, industry and regional heterogeneity. These results are robust to changes in the normalization of public capital and to using a physical measure of infrastructure. Second, public capital is considered as an exogenously given input. The corresponding production function estimates are unbiased in face of the correlation between private inputs and productivity. Our results indicate that the marginal contribution of regional public capital per capita to output is not robust: it is negative for several industries and when positive it is generally not significant.