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Trade Liberalization and Industry Dynamics: A Difference in Difference Approach

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  • Roberto Álvarez
  • Ricardo A. López

Abstract

Recent models of trade with firm heterogeneity predict that opening to trade reduces the number of firms, increases the average size of firms, and decreases firms’ markups. This paper uses a large dataset for 28 manufacturing industries and 46 countries to test these predictions. The econometric analysis based on the treatment effects literature shows that on average, trade liberalizations do not decrease the number of firms nor increase the average size of firms. Markups appear to decrease during the three years after the liberalization. We also find that the number of firms and the average size of firms increase in comparative advantage industries.

Suggested Citation

  • Roberto Álvarez & Ricardo A. López, 2008. "Trade Liberalization and Industry Dynamics: A Difference in Difference Approach," Working Papers Central Bank of Chile 470, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:470
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    References listed on IDEAS

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    Cited by:

    1. Bianka Dettmer, 2012. "The European Union's service directive: Contrasting ex ante estimates with empirical evidence," Jena Economic Research Papers 2012-019, Friedrich-Schiller-University Jena.

    More about this item

    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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