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Markups, entry regulation, and trade - Does country size matter?

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  • Hoekman, Bernard
  • Hiau Looi Kee
  • Olarreaga, Marcelo

Abstract

Actual, and potential competition is a powerful source of discipline on the pricing behavior of firms with market power. The authors develop a simple model that shows that the effects of new entry, and import competition on industry price-cost markups, depend on country size. The authors predicted that barriers to domestic entry would have a stronger anti-competitive effect in large countries, while barriers to foreign entry (imports) would have a stronger effect in small countries. After estimating markups for manufacturing sectors in forty-one industrial, and developing countries, they test these hypotheses, and find that the hypotheses cannot be rejected by the data. For example, although Indonesia, and Italy impose the same number of regulations on the entry of new firms, the effect of the regulations on manufacturing markups is twenty percent greater in Italy because of its larger size. Similarly, while Chile and Zimbabwe have the same import penetration ration, the market discipline effect of imports is thirteen percent greater in Zimbabwe because of its smaller size.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2662.

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Date of creation: 31 Aug 2001
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Handle: RePEc:wbk:wbrwps:2662

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Keywords: Water Treatment&Quality; Roads&Highways; Montreal Protocol; Water Conservation; Coastal and Marine Resources; Environmental Economics&Policies; Economic Theory&Research; Water and Industry; Trade and Regional Integration; Banks&Banking Reform;

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  1. Susanto Basu & John G. Fernald, 1995. "Are Apparent Productive Spillovers a Figment of Specification Error?," NBER Working Papers 5073, National Bureau of Economic Research, Inc.
  2. Damien NEVEN & Paul SEABRIGHT, 1995. "Trade Liberalisation and the Co-ordination of Competition Policy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9503, Université de Lausanne, Faculté des HEC, DEEP.
  3. Richardson, Martin, 1999. "Trade and Competition Policies: Concordia Discors?," Oxford Economic Papers, Oxford University Press, vol. 51(4), pages 649-64, October.
  4. Horn, Henrik & Levinsohn, James A, 2000. "Merger Policies And Trade Liberalization," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2459, C.E.P.R. Discussion Papers.
  5. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, Elsevier, vol. 36(1-2), pages 53-73, February.
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Citations

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Cited by:
  1. Alejandro Castañeda, 2003. "Mexican manufacturing markups: procyclical behavior and the impact of trade liberalization," Economia Mexicana NUEVA EPOCA, , vol. 0(2), pages 209-230, July-Dece.
  2. Paolo Epifani & Gino Gancia, 2006. "Increasing Returns, Imperfect Competition, and Factor Prices," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 583-598, November.
  3. Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011. "Imports as Product and Labour Market Discipline," British Journal of Industrial Relations, London School of Economics, London School of Economics, vol. 49(2), pages 331-361, 06.
  4. Sophie Guilloux & Enisse Kharroubi, 2008. "Some preliminary evidence on the globalization-inflation nexus," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 18, Federal Reserve Bank of Dallas.
  5. Hervé Boulhol, 2005. "The convergence of price-cost margins," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla05056, Université Panthéon-Sorbonne (Paris 1).
  6. Rumen Dobrinsky & Gabor Korosi & Nikolay Markov & Laszlo Halpern, 2004. "Firms’ Price Markups and Returns to Scale in Imperfect Markets - Bulgaria and Hungary," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 0412, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  7. Kee, Hiau Looi & Hoekman, Bernard, 2007. "Imports, entry and competition law as market disciplines," European Economic Review, Elsevier, Elsevier, vol. 51(4), pages 831-858, May.
  8. Aldaba, Rafaelita M., 2005. "The Impact of Market Reforms on Competition, Structure and Performance of the Philippine Economy," Discussion Papers, Philippine Institute for Development Studies DP 2005-24, Philippine Institute for Development Studies.
  9. Aslan, Alper & Kula, Ferit, 2008. "Türkiye İmalat Sanayinde Fiyat-Maliyet Marjları: Dönemler ve Sektörler İtibariyle Karsılastırmalı Bir Analiz," MPRA Paper 10606, University Library of Munich, Germany.
  10. Hervé Boulhol, 2005. "Why haven't price-cost margins decreased with globalization ?," Cahiers de la Maison des Sciences Economiques, Université Panthéon-Sorbonne (Paris 1) bla06007, Université Panthéon-Sorbonne (Paris 1).
  11. Hervé Boulhol, 2006. "Why Haven't Price-Cost Margins Decreased with Globalization ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084267, HAL.
  12. Saatci, Mustafa & Aslan, Alper, 2007. "TÜRKİYE İMALAT SANAYİNDE İTHALATIN PİYASAYI DİSİPLİNE ETME HİPOTEZİNİN TESTİ: PANEL VERi YAKLASIMI," MPRA Paper 10604, University Library of Munich, Germany.
  13. Clarke, George R. G., 2005. "Do government policies that promote competition encourage or discourage new product and process development in low and middle-income countries?," Policy Research Working Paper Series 3471, The World Bank.

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