Productivity, firm size and trade liberalization in a partner country: Evidence from Korean firm-level data

•The impact of partner country's trade liberalization on productivity is examined.•Impacts are analyzed by firm-size distribution.•A reduction in China's tariffs induces Korean firms above median size to increase their TFP.•The effect of any given tariff reduction is highest in the uppermost quartile.

In this paper, I study the impact of partner-country tariffs on Korean firm-level productivity for the period from 2005 to 2009. I start by documenting that the rates at which total factor productivity, spending on technology, number of exporting firms, and exports grow are increasing with firm size. My results show that a reduction in China's tariffs induces Korean firms above median size to increase their productivity. Also, I find that the effect of any given tariff reduction is highest in the uppermost quartile of the firm-size distribution.