for Indonesia. More recently, Beverelli et al. (2017) found a cross-section of countries at different stages of development, also unveiling positive productivity effects downstream associated with increased presence of FDI upstream.

The evidence on productivity and its links to integration in the global marketplace for Pakistan is limited, and particularly that relying on firm-level data. Indeed, data availability has been a major constraint and existing research tends to rely on small or sector-specific samples, or cross-sectional data. Wadho et al. (2019), for example, using a survey of about 600 firms in the textiles sector find that export intensive firms grow more slowly in terms of employment and this could be explained by exporting firms being on average larger and older than other firms. Choudhary et al. (2018) collect information on management quality, as a measure of performance, for about 4,500 manufacturing firms. They find that Pakistani firms are well behind the global frontier yet have been displaying some improvement over the past decade. They also find that firms that are more export oriented have more structured management practices, themselves a proxy for productivity. Finally, Kinda (2012) uses a cross-section of firms in Pakistan, and in four other developing countries, and finds that firms that sell more of their production to multinationals tend to be more efficient. Few studies provide a macrolevel overview of productivity in Pakistan. Siddique (2020), for example, investigates the main drivers of aggregate TFP growth, while Chaudhry and Haseeb (2014) explore misallocations in productivity across plants in the manufacturing sector.

This paper examines productivity dynamics of publicly listed firms in Pakistan, and the extent to which integration in the global marketplace explains their productivity growth. We exploit substantial variation in import duties along the period of analysis, as well as in FDI penetration to measure the impact of integration upstream in terms of both merchandise and services inputs on productivity downstream, and examine how policy distortions in upstream sectors have affected productivity growth in firms operating downstream. Hence, to the best of our knowledge, this is the first study to unveil firm-level evidence on productivity dynamics and to explore the linkages between the productivity of Pakistani firms and integration in the global marketplace. This adds to the understanding of firms’ productivity dynamics in lower-middle-income country contexts, in which firms operate in markets subject to several frictions that constrain their technological choices and affect their performance.

The case of Pakistan is particularly relevant as it allows us to explore the productivity impact of distortions both de jure and de facto in upstream markets typically found in low-to-middle income countries. In addition, it allows us to identify the impact that imperfectly functioning import duty exemption mechanisms for exporters have on their productivity. Indeed, the literature on trade reforms and productivity, in particular that focusing on the channel operating through liberalization of intermediate input trade, has largely neglected the fact that exporters are typically and in principle eligible for intermediate input duty exemptions (for example, Topalova and Khandelwal, 2011 for India; or Amiti and Konings, 2007 for Indonesia. Both India and Indonesia have in place systems of import duty exemptions for intermediates used for exporting). Failure to acknowledge this fact can 3