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Trade Liberalization and Industry Dynamics: A Difference in Difference Approach

Author

Listed:
  • Roberto Alvarez

    (Central Bank of Chile)

  • Ricardo Lopez

    (Indiana University Bloomington)

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 Alvarez & Ricardo Lopez, 2008. "Trade Liberalization and Industry Dynamics: A Difference in Difference Approach," CAEPR Working Papers 2008-009, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
  • Handle: RePEc:inu:caeprp:2008009
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade Liberalization; Industry Dynamics; Treatment Effects;
    All these keywords.

    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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