Closing the productivity gap and trade policy

Document Type



Doctor of Philosophy (PhD)



First Advisor's Name

Cem Karayalcin

First Advisor's Committee Title

Committee Chair

Second Advisor's Name

Devashish Mitra

Third Advisor's Name

Irma Alonso

Fourth Advisor's Name

Panagis Liossatos

Date of Defense



The relationship between trade policy and productivity growth is regarded as ambiguous in the literature. This dissertation examines under what condition the relationship would be positive (or negative). Through the use of static and dynamic analysis, we find two conflicting effects (the pro-protection effect and the pro-competitive effect) that cause the relationship to be ambiguous. If there exists a productivity gap between the import-competing and foreign industries, and if the level o f protection is low (high), the relationship is positive (negative). We also show that the import-competing firm responds to a change in the protection level by choosing a level of investment in innovation which yields a different rate of productivity growth. The policy implication, therefore, is that a trade-policy maker should set the trade protection at a level which induces the firm to choose the highest rate of productivity growth, and, as a result, leading the firm to close the initial productivity gap in the most efficient way.



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