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Trade Liberalization and Industry Dynamics: A Difference in Difference Approach

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  • Roberto Alvarez

    ()
    (Central Bank of Chile)

  • Ricardo Lopez

    ()
    (Indiana University Bloomington)

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.

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Bibliographic Info

Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2008-009.

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Length: 51 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:inu:caeprp:2008-009

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Keywords: Trade Liberalization; Industry Dynamics; Treatment Effects;

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References

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Cited by:
  1. Bianka Dettmer, 2012. "The European Union's service directive: Contrasting ex ante estimates with empirical evidence," Jena Economic Research Papers 2012-019, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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