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Trade Liberalization and Industry Dynamics: A Difference in Difference ApproachRoberto AlvarezCentral Bank of Chile - Research Department Ricardo A. LopezBrandeis International Business School April 30, 2008 CAEPR Working Paper No. 2008-009 Abstract: 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, L11 working papers seriesDate posted: April 30, 2008Suggested CitationContact Information
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