Tariffs and Firm Performance in Ethiopia

We use data on Ethiopian manufacturing firms and commodity-level data on tariffs to examine the effects of trade liberalisation on firm performance. We distinguish the productivity gains that arise from reducing final goods tariffs from those that arise from reducing tariffs on intermediate inputs. We find no evidence that output tariff reduction improves productivity, but we find large positive effects of input tariff reductions. These are robust to alternative productivity measures, treating tariffs as endogenous, and various generalisations of the model. We conclude that policy measures designed to facilitate access to inputs produced abroad may lead to productivity gains.