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Exit in Developing Countries: Economic Reforms and Plant Heterogeneity

  • Sebastián Vergara
  • Roberto Álvarez

Several studies have found that plant turnover contributes to productivity growth. This evidence seems to be consistent with the idea that, by reducing protection granted to inefficient firms, economic liberalization would generate productivity gains associated with resource reallocation from less productive to more productive firms. However, little empirical work has been done directly linking economic liberalization and plant exit. This paper uses Chilean reforms to shed light on their effects on plant exit. Our econometric analysis shows that larger and more productive plants are less likely to exit. After controlling for these characteristics, we also find that exit is more likely in export-oriented industries. Moreover, we find a differential impact of economic liberalization and exchange rate fluctuations. Changes in these variables have a more significant impact on less productive and smaller plants. By industry, we find that the plants that are most affected are those in export-oriented sectors.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 506.

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Date of creation: Dec 2008
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Handle: RePEc:chb:bcchwp:506
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  1. Amil Petrin & Brian P. Poi & James Levinsohn, 2004. "Production function estimation in Stata using inputs to control for unobservables," Stata Journal, StataCorp LP, vol. 4(2), pages 113-123, June.
  2. José Miguel Benavente & Christian Ferrada, 2004. "Probability of Survival of New Manufacturing Plants: the case of Chile," Econometric Society 2004 Latin American Meetings 305, Econometric Society.
  3. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
  4. James Levinsohn & Amil Petrin, 2000. "Estimating Production Functions Using Inputs to Control for Unobservables," NBER Working Papers 7819, National Bureau of Economic Research, Inc.
  5. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  6. Eslava, Marcela & Haltiwanger, John & Kugler, Adriana & Kugler, Maurice, 2004. "The effects of structural reforms on productivity and profitability enhancing reallocation: evidence from Colombia," Journal of Development Economics, Elsevier, vol. 75(2), pages 333-371, December.
  7. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
  8. Raphael Bergoeing & Andr�s Hernando & Andrea Repetto, 2005. "Market Reforms and Efficiency Gains in Chile," Documentos de Trabajo 207, Centro de Economía Aplicada, Universidad de Chile.
  9. Pavcnik, Nina, 2002. "Trade Liberalization, Exit, and Productivity Improvement: Evidence from Chilean Plants," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 245-76, January.
  10. Andrew B Bernard & J Bradford Jensen, 2001. "Who Dies? International Trade, Market Structure, and Industrial Restructuring," Working Papers 01-04, Center for Economic Studies, U.S. Census Bureau.
  11. Jen Baggs, 2005. "Firm survival and exit in response to trade liberalization," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1364-1383, November.
  12. Gibson, John K & Harris, Richard I D, 1996. "Trade Liberalisation and Plant Exit in New Zealand Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 521-29, August.
  13. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
  14. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  15. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
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