Trade Liberalization and Industry Dynamics: A Difference in Difference Approach
Central Bank of Chile - Research Department
Ricardo A. Lopez
Brandeis International Business School
April 30, 2008
CAEPR Working Paper No. 2008-009
Recent models of trade with firm heterogeneity predict that opening to trade reduces the number of firms, increases the average size of firms, and decreases firms' markups. This paper uses a large dataset for 28 manufacturing industries and 46 countries to test these predictions. The econometric analysis based on the treatment effects literature shows that on average, trade liberalizations do not decrease the number of firms nor increase the average size of firms. Markups appear to decrease during the three years after the liberalization. We also find that the number of firms and the average size of firms increase in comparative advantage industries.
Number of Pages in PDF File: 51
Keywords: Trade Liberalization, Industry Dynamics, Treatment Effects
JEL Classification: F10, L11working papers series
Date posted: April 30, 2008
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