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The effect of trade on market power — evidence from developing economies

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  • Jesus Gonzalez-Garcia
  • Yuanchen Yang

Abstract

The rise of market power has sparked off increasing public debate over the past decade. Using a novel large-scale firm-level dataset, this paper examines the effect of trade liberalization on corporate market power in emerging and developing economies. We find that opening up to trade significantly reduces market power by promoting competition and improving resource allocation. The cumulative impact is estimated at 4 percent reduction in average markups over a 5-year horizon post each trade liberalization episode. We also draw on machine learning algorithms to account for nonlinearities in the relationship and show that trade reform is complementary to other structural reforms.

Suggested Citation

  • Jesus Gonzalez-Garcia & Yuanchen Yang, 2022. "The effect of trade on market power — evidence from developing economies," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 31(6), pages 811-834, August.
    • Handle: RePEc:taf:jitecd:v:31:y:2022:i:6:p:811-834
    DOI: 10.1080/09638199.2021.2022741
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    Cited by:

    1. Shadrack Muthami Mwatu & Charity Kageni Mbaka & John Gakuu Karanja & Grace Mukami Muriithi, 2024. "Trade Agreements, Technical Regulations, and Standards: Competitiveness Implications for Kenyan Exporters to European Union," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 36(2), pages 381-410, April.

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