Trade Protection and Capital Imports in the Mexican Manufacturing Sector

Several studies have investigated the link between trade protection and productivity in developing economies. Others have looked into the relationship between technology imports and in-house technology production. This paper contributes to the literature by estimating the effect of trade protection on purchases of foreign capital goods for a panel of Mexican manufacturing plants. Product-market tariffs lower the probability that a plant will import capital goods, while both output and input tariffs are associated with smaller quantities of capital imports. Capital imports are also associated with higher productivity. Thus, trade barriers may indirectly lower productivity by inhibiting the importation of foreign technologies through capital goods.