Midwest Social Sciences Journal


In this paper, I address two questions: (1) Does reducing tariffs for manufacturing inputs affect productivity in service industries? (2) Does the effect of input trade liberalization differ for importers in service and manufacturing industries? To answer these questions, I used an establishment-level survey of Uruguayan service industries from 1998 to 2005, a period in which the country reduced its tariffs on manufactured products. I found that service establishments that import inputs from abroad experience a larger increase in productivity relative to non-importers when input tariffs are reduced. Furthermore, the effects of trade liberalization are as significant in the service industries as in manufacturing.

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