A recent paper shows that higher import tariffs reduce productivity in the SA manufacturing industry. The paper uses uses tax administrative data in over 70 manufacturing sub-industries and find that a one-standard-deviation increase in import tariffs leads to productivity losses of 2.8 to 6.2 percent as inefficient producers that command a larger share of resources in protected industries. This capital misallocation reduces aggregate productivity by 67 percent. This paper has important policy implications: tariffs lead to capital misallocation and lower productivity, which affects the whole economy. The authors note that capital dispersion from such distortions is higher in South Africa than any of the economies considered.
Its worth adding some context: South Africa’s trade liberalisation lost steam after 2010, with export volumes broadly flat since yet, and stagnant productivity.
