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Testing the Imports-As-Market-Discipline Hypothesis

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  • Levinsohn, J.

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

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 272.

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Length: 22 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:mie:wpaper:272

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Related research

Keywords: competition ; trade liberalization;

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References

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  1. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(5), pages 921-47, October.
  2. Helpman, E., 1990. "Monopolistic Competition In Trade Theory," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 16, International Economics Section, Departement of Economics Princeton University,.
  3. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, Elsevier, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  6. Caves, Richard E., 1985. "International trade and industrial organization: Problems, solved and unsolved," European Economic Review, Elsevier, vol. 28(3), pages 377-395, August.
  7. Rodrik, Dani, 1990. "Premature Liberalization, Incomplete Stabilization: The Ozal Decade in Turkey," CEPR Discussion Papers 402, C.E.P.R. Discussion Papers.
  8. Roberts, Mark J., 1984. "Testing oligopolistic behavior," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 2(4), pages 367-383, December.
  9. 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.
  10. Harrison, Ann E., 1990. "Productivity, imperfect competition, and trade liberalization in Cote d'Ivoire," Policy Research Working Paper Series 451, The World Bank.
  11. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
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