Industrial labor productivities and tariffs in South Africa

The analysis of the effect of tariffs for labor productivity faces the challenge of tariff policy endogeneity. Tariff policy is designed to promote economic development and the industrial sector tariff structure may reflect characteristics of the industries protected. We seek to identify the effect of tariffs by taking advantage of multilateral tariff liberalization using reductions in industrial sector tariffs in other world regions as instruments for sectoral tariff reductions in South Africa. The data cover 28 manufacturing sectors over the period 1988-2003. We find that tariff reductions have stimulated labor productivity when instrumented by multilateral tariffs. The OLS estimates show downward bias and supports the understanding that the government has given priority to tariff reductions in sectors with slow productivity growth.