This paper investigates the causal relationship between tariff reduction and firm total factor
productivity, controlling for firm’s product differentiation level. We utilize Vietnamese firmlevel
data covering the period 2001-2009, when substantial trade liberalization took place.
Our research questions are two-fold: First, what is the change in productivity of manufacturing
firms induced by liberalization? Second, how is the impact different across firms with
different level of product heterogeneity? Our main findings are as follows: First, output
tariff reduction hurts firms performance, while input tariff reduction boosted firms productivity.
The magnitude of input tariff is larger, suggesting that changes in input tariff have
made more pronounced impact on firm’s productivity. Second, the impact of output tariff
on firms productivity is smaller for firms that produce differentiated goods. One possible
explanation is that firms producing differentiated goods face less severe competition in the
final market. Therefore, they are less vulnerable to output tariff reduction. These two results
together suggest that reduction of trade barriers would receive less resistance from firms in
differentiated product industries, who experience more productivity enhancement effect.