Productivity Spreads, Market Power Spreads and Trade
AbstractMuch of recent Trade theory focuses on heterogeneity of firms and the differential impact trade policy might have on firms with different levels of productivity. A common problem is that most firm level dataset do not contain information on output prices of firms which makes it difficult to distinguish between productivity differences and differences in market power between firms. This paper develops a new econometric framework that allows estimating both firm specific productivity and market power in a semi-parametric way based on a control function approach. The framework is applied to Chilean firm level data from the early 1980, shortly after the country underwent wide ranging trade reforms. The finding is that in all sectors of the economy market power declined and productivity increased. In sectors with higher import penetration productivity particularly at the bottom end of the distribution increased faster. At the same time market power declined particularly so at the top end of the market power distribution. We also show, that ignoring the effect on market power leads to an underestimation of the positive effects of increased import penetration on productivity.
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Bibliographic InfoPaper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0997.
Date of creation: Sep 2010
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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP
Trade policy; productivity measurement; imperfect competition; productivity dispersion; productivity spread;
Find related papers by JEL classification:
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-EFF-2010-10-02 (Efficiency & Productivity)
- NEP-INT-2010-10-02 (International Trade)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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SFB 649 Discussion Papers
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CORE Discussion Papers
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