ABSTRACT
Neoclassical trade theory postulates that trade liberalisation delivers productivity gains and efficiency by exposing manufacturing industries to international competition, by adopting high-quality equipment and intermediate goods, and by enlarging markets. These gains arise from specialisation based on a nation’s comparative advantage or from realising economies of scale and other dynamic benefits resulting in sizeable cost reductions due to technical efficiencies in production. Although some critics doubt the role of trade as a propeller of growth, empirical studies indicate the positive effect of trade on productivity change and growth. These include empirical works at the macroeconomic level across countries (Ben-David, 1993; Sachs and Warner, 1995; Coe and Helpman, 1995; Coe et al., 1997; Keller, 1998), at the industry level (Keller, 2000; Kim, 2000), and at the firm level (Clerides et al., 1998; Bernard and Jensen, 1999; HallwardDriemeier et al., 2002).
