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Trade Liberalization and Industry Dynamics

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  • Roberto Álvarez

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  • Ricardo López

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Abstract

This paper uses a large data set for 28 industries in 40 countries to examine the effects of trade liberalization on the number of firms, the average size of surviving firms, and markups. We extend previous studies by examining not only tariff changes in the liberalizing country but also trade reforms in the rest of the world. In addition, we look at whether these effects differ across industries depending on their degree of comparative advantage. The results show that a reduction in home tariffs decreases the number of establishments, firms average size, and markups. All of these three effects are found to be of lower magnitude for comparative advantage industries. In the case of foreign tariffs, our results show that a reduction in protection in the rest of the world is associated with an increase in the number of establishments (which is likely to be reflecting an increase in export profitability), a decrease in average size, while markups are mostly unaffected. As with home tariffs, these effects tend to be less pronounced in comparative advantage industries. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Roberto Álvarez & Ricardo López, 2012. "Trade Liberalization and Industry Dynamics," Open Economies Review, Springer, vol. 23(4), pages 579-595, September.
  • Handle: RePEc:kap:openec:v:23:y:2012:i:4:p:579-595
    DOI: 10.1007/s11079-011-9233-1
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    File URL: http://hdl.handle.net/10.1007/s11079-011-9233-1
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    References listed on IDEAS

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    Cited by:

    1. Haichao Fan & Edwin L.-C. Lai & Han Steffan Qi, 2016. "Imported-input Trade Liberalization and Firms' Export Performance in China: Theory and Evidence," CESifo Working Paper Series 5828, CESifo.
    2. Youngho Kang, 2017. "Job Destruction and the Impact of Imports on Wages in U.S. Manufacturing," Open Economies Review, Springer, vol. 28(4), pages 711-730, September.

    More about this item

    Keywords

    Trade liberalization; Industry dynamics; Rationalization; Markups; F10; L11;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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