Trade Liberalization and Productivity Performance: Evidence from the Australian Passenger Motor Vehicle Industry

Abstract

This paper contributes to the ongoing debate about the effects of trade liberalization on productivity performance of the Australian passenger motor vehicle industry, which has experienced significant liberalization over the years. Our analysis indicates that trade liberalization had a negative impact on productivity growth, at least in the immediate post-liberalization period. Empirical results suggest that economies of scale and tariff protection improve productivity, while industry assistance (such as the local content and duty drawback schemes and production subsidies) retards productivity. Policy implications of these findings are that there are dividends in terms of improved productivity by encouraging economies of scale, providing tariff protection and lowering industry assistance.