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The Influence of Increased Foreign Competition on Industrial Concentration and Profitability

In: Developing Countries in the World Economy

Author

Listed:
  • Jaime de MELO
  • Shujiro URATA

Abstract

This paper uses the Chilean manufacturing censuses of 1967 and 1979 to examine the effects of the Chilean reforms in the mid~1970s on market structure and performance. The reforms substantially increased the concentration in industry and substantially reduced profitability. These outcomes are interpreted in the light of hypotheses about the effect of potential entrants on market structure and on the pricing behavior of incumbents. Next, a cross-sectoral simultaneous equations model of structure and performance is estimated to isolate the contribution of import and export shares to cross-sectoral variations in concentration and profitability and to test for structural change between the two censuses. The analysis confirms that the liberalization of trade changed the way import and export shares determined profitability and supports the import discipline hypothesis.

Suggested Citation

  • Jaime de MELO & Shujiro URATA, 2015. "The Influence of Increased Foreign Competition on Industrial Concentration and Profitability," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 9, pages 219-236, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814494908_0009
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    Cited by:

    1. Zimmerman, Paul R. & Carlson, Julie A., 2012. "Critical import supply elasticities and the ‘imports-as-market-discipline’ hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 345-354.
    2. Thompson, Aileen, 2000. "Import Competition and Market Power: Canadian Evidence," Analytical Studies Branch Research Paper Series 2000139e, Statistics Canada, Analytical Studies Branch.
    3. Alan Asprilla & Nicolas Berman & Olivier Cadot & Mélise Jaud, 2019. "Trade Policy And Market Power: Firm‐Level Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(4), pages 1647-1673, November.
    4. De Melo, Jaime, 1988. "CGE models for the analysis of trade policy in developing countries," Policy Research Working Paper Series 3, The World Bank.
    5. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Pro-competitive effects of trade reform : Results from a CGE model of Cameroon," European Economic Review, Elsevier, vol. 35(5), pages 1157-1184, July.
    6. Mendoza, Edwin Gil Q., 1994. "Shipbuilding/Repair and Boatbuilding Industry," Research Paper Series RPS 1994-07, Philippine Institute for Development Studies.
    7. Aileen J. Thompson, 1999. "Import Competition and Market Power: Canadian Evidence," Carleton Economic Papers 99-14, Carleton University, Department of Economics, revised Mar 2000.
    8. Elango, B. & Pattnaik, Chinmay, 2013. "Response strategies of local firms to import competition in emerging markets," Journal of Business Research, Elsevier, vol. 66(12), pages 2460-2465.
    9. Elbehri, Aziz & Hertel, Thomas, 2006. "A Comparative Analysis of the EU-Morocco FTA vs. Multilateral Liberalization," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 496-525.
    10. Arzu Akkoyunlu-Wigley & Sevinc Mihci, 2006. "Effects of the customs union with the European Union on the market structure and pricing behaviour of the Turkish manufacturing industry," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2443-2452.
    11. Hountondji, Guéliffo, 1998. "Commerce extérieur et disparitions d’entreprises industrielles," L'Actualité Economique, Société Canadienne de Science Economique, vol. 74(2), pages 221-244, juin.
    12. HAYAKAWA Kazunobu & URATA Shujiro & YAMANOUCHI Kenta, 2022. "Import Competition from China and Markup Dispersion," Discussion papers 22031, Research Institute of Economy, Trade and Industry (RIETI).
    13. Wacziarg, Romain, 2002. "India in the World Trading System," Research Papers 1760, Stanford University, Graduate School of Business.
    14. Thompson, Aileen J., 2002. "Import competition and market power: Canadian evidence," The North American Journal of Economics and Finance, Elsevier, vol. 13(1), pages 40-55, May.
    15. T. Condon & J. de Melo, 2015. "Industrial Organization Implications of QR Trade Regimes: Evidence and Welfare Costs," World Scientific Book Chapters, in: Modeling Developing Countries' Policies in General Equilibrium, chapter 19, pages 405-419, World Scientific Publishing Co. Pte. Ltd..
    16. Omer Gokcekus & Yui Suzuki, 2016. "Mixing Washington Consensus With Beijing Consensus And Corruption In Africa," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-14, June.
    17. de Melo, Jaime & Dhar, Sumana, 1992. "Lessons of trade liberalization in Latin America for economies in transition," Policy Research Working Paper Series 1040, The World Bank.
    18. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
    19. 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.
    20. Lapid, Dennis D., 1994. "Appliance Industry," Research Paper Series RPS 1994-05, Philippine Institute for Development Studies.
    21. Austria, Myrna S., 1994. "Textile and Garment Industries," Research Paper Series RPS 1994-06, Philippine Institute for Development Studies.
    22. Erkan Erdem & James Tybout, 2003. "Trade Policy and Industrial Sector Responses: Using Evolutionary Models to Interpret the Evidence," NBER Working Papers 9947, National Bureau of Economic Research, Inc.
    23. repec:ilo:ilowps:248521 is not listed on IDEAS
    24. Medilo, Maria Cristina, 1994. "Packaging Industry: Impact of Trade Policy Reforms on Performance, Competitiveness and Structure," Research Paper Series RPS 1994-01, Philippine Institute for Development Studies.
    25. Kumar, Nagesh, 1996. "Foreign Direct Investments and Technology Transfers in Development: A Perspective on Recent Literature," UNU-INTECH Discussion Paper Series 1996-06, United Nations University - INTECH.

    More about this item

    Keywords

    Trade Barriers and Market Structure; Quantitative Restrictions; Political Economy and Migration; Trade and the Environment;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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