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Size Rationalization and Trade Exposure in Developing Countries

In: Empirical Studies of Commercial Policy

  • Mark J. Roberts
  • James R. Tybout

Given the lack of direct evidence regarding industrial adjustment in response to trade liberalization, this paper tackles some very basic questions. Specifically, in LDCs, how is trade orientation correlated with the size distribution of plants and with plant-level labor productivity? It begins with a simple model that summarizes some effects of trade exposure on producer size and productive efficiency that have been stressed in the recent analytical and simulation literature. It then examines annual plant-level data from Chile and Colombia to determine whether these effects can be confirmed. The empirical results indicate that, over the long run, higher trade exposure is correlated with smaller plant sizes, controlling for industry and country effects. However, the mix of high versus low productivity plants is not strongly associated with trade exposure. Both of these findings cast doubt on the mechanisms linking trade, plant size, and productivity in a number of recent analytical and simulation studies.

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This chapter was published in:
  • Robert E. Baldwin, 1991. "Empirical Studies of Commercial Policy," NBER Books, National Bureau of Economic Research, Inc, number bald91-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6713.
    Handle: RePEc:nbr:nberch:6713
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Shantayanan Devarajan & Dani Rodrik, 1989. "Pro-Competitive Effects of Trade Reform: Results from a CGE Model of Cameroon," NBER Working Papers 3176, National Bureau of Economic Research, Inc.
    2. de Melo, Jaime, 1988. "Computable general equilibrium models for trade policy analysis in developing countries: A survey," Journal of Policy Modeling, Elsevier, vol. 10(4), pages 469-503.
    3. Buffie, Edward F. & Spiller, Pablo T., 1986. "Trade liberalization in oligopolistic industries : The quota case," Journal of International Economics, Elsevier, vol. 20(1-2), pages 65-81, February.
    4. Condon, Timothy & de Melo, Jaime, 1990. "Industrial organization implications of QR trade regimes : evidence and welfare costs," Policy Research Working Paper Series 487, The World Bank.
    5. Horstmann, Ignatius J. & Markusen, James R., 1986. "Up the average cost curve: Inefficient entry and the new protectionism," Journal of International Economics, Elsevier, vol. 20(3-4), pages 225-247, May.
    6. Devarajan, Shantayanan & Rodrik, Dani, 1989. "Trade Liberalization in Developing Countries: Do Imperfect Competition and Scale Economies Matter?," American Economic Review, American Economic Association, vol. 79(2), pages 283-87, May.
    7. Brown, Drusilla K., 1991. "Tariffs and capacity utilization by monopolistically competitive firms," Journal of International Economics, Elsevier, vol. 30(3-4), pages 371-381, May.
    8. 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.
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