Input tariffs, Roads and Firm Performance

Marco Sanfilippo PhD, University of Bari and University of Antwerp

A reduction in input tariffs can provide firms with access to cheaper, better quality and a wider variety of intermediate inputs, improving firm performance. This paper investigates the role of road infrastructure in shaping the effects of a reduction in input tariffs on firm productivity. We conceive of a framework where intermediaries transport goods to local markets. Better infrastructure decreases intra-national transport costs, improves competition among intermediaries and increases demand in local markets. Depending on the relative strengths of these channels, improving infrastructure can either amplify or attenuate the positive effects of a reduction in input tariffs on firm productivity. We aim to resolve this ambiguity empirically by exploiting census data on Ethiopian manufacturing firms combined with information on tariff reform and improvements in road infrastructure at the town level. We show that a reduction in input tariffs has a strong positive effect on productivity for firms located in towns with better road infrastructure. Our study underlines the importance of domestic transport infrastructure in ensuring that gains from input tariff liberalization are spread uniformly within developing countries.

Venue: UNU-MERIT, Room 0.17

Date: 20 November 2018

Time: 14:30 - 15:30