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Free Trade Agreements and Firm-Product Markups in Chilean Manufacturing

Author

Listed:
  • A. R. Lamorgese

    (Bank of Italy)

  • A. Linarello

    (Bank of Italy and UPF)

  • Frederic Warzynski

    () (Department of Economics and Business, Aarhus University, Denmark)

Abstract

In this paper, we use detailed information about firms’ product portfolio to study how trade liberalization affects prices, markups and productivity. We document these effects using firm product level data in Chilean manufacturing following two major trade agreements with the EU and the US. The dataset provides information about the value and quantity of each good produced by the firm, as well as the amount of exports. One additional and unique characteristic of our dataset is that it provides a firm-product level measure of the unit average cost. We use this information to compute a firm-product level measure of the profit margin that a firm can generate. We find that new products start being sold on foreign markets as export tariff fall. Moreover, for those products, we observe a fall in both prices and unit average costs. Those effects are mainly driven by an increase in productivity at the firm-product level. On average, adjustment on the profit margin does not appear to play a role. However, for more differentiated products, we find some evidence of an increase in markups, suggesting that firms do not fully pass-through increases in productivity on prices whenever they have enough bargaining power.

Suggested Citation

  • A. R. Lamorgese & A. Linarello & Frederic Warzynski, 2014. "Free Trade Agreements and Firm-Product Markups in Chilean Manufacturing," Economics Working Papers 2014-16, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2014-16
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    File URL: ftp://ftp.econ.au.dk/afn/wp/14/wp14_16.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Peter Neary & Monika Mrázová & Mathieu Parenti, 2015. "Technology, Demand, And The Size Distribution Of Firms," Economics Series Working Papers 774, University of Oxford, Department of Economics.
    2. Chen Yeh, 2017. "Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?," Working Papers 17-23, Center for Economic Studies, U.S. Census Bureau.
    3. Mr�zov�, Monika & Neary, J Peter & Parenti, Mathieu, 2017. "Sales and Markup Dispersion: Theory and Empirics," CEPR Discussion Papers 12044, C.E.P.R. Discussion Papers.
    4. Chen Yeh, 2016. "Are firm-level idiosyncratic shocks important for U.S. aggregate volatility?," Working Papers 16-47, Center for Economic Studies, U.S. Census Bureau.
    5. Borota Milicevic, Teodora & Carlsson, Mikael, 2016. "Markups from Inventory Data and Export Intensity," Working Paper Series 2016:9, Uppsala University, Department of Economics.
    6. Alvaro Garcia Marin & Nico Voigtländer, 2013. "Exporting and Plant-Level Efficiency Gains: It's in the Measure," NBER Working Papers 19033, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    markups; physical productivity; free trade agreements;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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