Gain without pain? Non-tariff measures, plant markup, and productivity

Abstract

This paper extends the evidence on the impact of trade reforms on firms by focusing on non-tariff measures (NTMs), an increasingly important trade policy instrument in advanced and developing economies. We build a novel time-varying dataset on all NTMs applied to imported products by Indonesia and quantify the trade distortions they generate. We find that unlike tariffs, which reduce plants' productivity, NTMs do not significantly affect plants' performance. However, the most trade-reducing NTMs are associated with lower plant-level markups, which is consistent with the increase in the cost of imported inputs induced by these NTMs.