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Testing the imports-as-market-discipline hypothesis

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  • Levinsohn, James

Abstract

It has long been believed that international competition forces domestic firms to behave more competitively. I term this the imports-as--market-discipline hypothesis. I construct a simple static oligopoly model and estimate the model using panel data from Turkish manufacturing firms. The data span the course of a dramatic trade liberalization. Looking for changes in price-marginal cost markups as trade policy shifts, I test the imports-as-market discipline hypothesis. In all five industries to which the hypothesis is relevant, markups change in the direction predicted by the theory. These changes are statistically significant in all but one of the five industries.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 35 (1993)
Issue (Month): 1-2 (August)
Pages: 1-22

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Handle: RePEc:eee:inecon:v:35:y:1993:i:1-2:p:1-22

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Rodrik, Dani, 1990. "Premature Liberalization, Incomplete Stabilization: The Ozal Decade in Turkey," CEPR Discussion Papers 402, C.E.P.R. Discussion Papers.
  2. Caves, Richard E., 1985. "International trade and industrial organization: Problems, solved and unsolved," European Economic Review, Elsevier, vol. 28(3), pages 377-395, August.
  3. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
  4. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
  5. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May.
  6. Dani Rodrik, 1988. "Imperfect Competition, Scale Economies, and Trade Policy in Developing Countries," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 109-144 National Bureau of Economic Research, Inc.
  7. Roberts, Mark J., 1984. "Testing oligopolistic behavior," International Journal of Industrial Organization, Elsevier, vol. 2(4), pages 367-383, December.
  8. Helpman, E., 1990. "Monopolistic Competition In Trade Theory," Princeton Studies in International Economics 16, International Economics Section, Departement of Economics Princeton University,.
  9. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  10. Harrison, Ann E., 1990. "Productivity, imperfect competition, and trade liberalization in Cote d'Ivoire," Policy Research Working Paper Series 451, The World Bank.
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