Productivity and Trade Orientation: Turkish Manufacturing Industry before and after the Customs Union

The impact of trade liberalization on productivity and economic growth has received considerable attention in recent policy debates (for recent review, see Tybout, 2000 and 2001, Epifani, 2003, Erdem and Tybout, 2003). To start with, there is no consensus in the theoretical literature on the impact of trade reform on productivity. Some researchers claim that trade openness might improve productivity growth through three distinct channels: i) the disciplining effect of imports, ii) the increasing variety of available inputs, and iii) facilitating technology diffusion from abroad. However, as Rodrik (1988) and (1991) emphasized, trade openness might have an adverse impact on productivity growth, as domestic producers, when faced with reduced market shares, become less willing to bear the cost of adopting superior technologies.