Trade Liberalization and Industry Dynamics: A Difference in Difference Approach

51 Pages Posted: 30 Apr 2008  

Roberto Alvarez

University of Chile - Department of Economics

Ricardo A. López

Brandeis International Business School

Date Written: April 30, 2008

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.

Keywords: Trade Liberalization, Industry Dynamics, Treatment Effects

JEL Classification: F10, L11

Suggested Citation

Alvarez, Roberto and López, Ricardo A., Trade Liberalization and Industry Dynamics: A Difference in Difference Approach (April 30, 2008). CAEPR Working Paper No. 2008-009. Available at SSRN: https://ssrn.com/abstract=1127251 or http://dx.doi.org/10.2139/ssrn.1127251

Roberto Alvarez

University of Chile - Department of Economics ( email )

Diagonal Paraguay 257
Torre 26, Of. 1801
Santiago
Chile

Ricardo A. Lopez (Contact Author)

Brandeis International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

HOME PAGE: http://people.brandeis.edu/~rlopez/

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