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Market Power, Industry Concentration and Trade Liberalization: Evidence from Costa Rica

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  • Córdoba Solano, Daniela
  • Gomez-Trejos, Felipe
  • Vindas Quesada, Alberto

Abstract

Research about trade liberalization's impact on markups has focused on manufacturing due to data availability considerations. How do these effects vary across sectors? Which industries become more and less competitive as trade barriers are eliminated? We leverage firm-level tax records from the universe of formal-sector businesses in Costa Rica with the 2009 trade liberalization as a natural experiment to evaluate its industry-specific effects on markups across all industries. We find negative effects on markups in agriculture, mining, electricity, water supply, and business services. Alternatively, the reform led to markup increases in accommodations and food services, information and communications, real estate, finance and insurance, and education, health, and social work. We do not observe statistically significant effects in manufacturing, transportation and storage, construction, and wholesale and retail trade. Our findings represent a more comprehensive evaluation of the potential pro-competitive effects from trade liberalization than existing studies exclusively focusing on manufacturing firms.

Suggested Citation

  • Córdoba Solano, Daniela & Gomez-Trejos, Felipe & Vindas Quesada, Alberto, 2025. "Market Power, Industry Concentration and Trade Liberalization: Evidence from Costa Rica," IDB Publications (Working Papers) 14003, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:14003
    DOI: http://dx.doi.org/10.18235/0013429
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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