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Trade Policy and Industrial Sector Responses: Using Evolutionary Models to Interpret the Evidence

  • Erkan Erdem
  • James Tybout

Firm- and plant-level empirical studies typically find that trade liberalization squeezes price-cost margins among import-competing firms, that this heightened competitive pressure induces productivity gains among these same firms, and that further efficiency gains come from market share reallocations. Using a computable industrial evolution model to simulate the dynamic effects of import competition, we demonstrate what types of managerial behavior, long-term transition paths and welfare effects are consistent with this set of stylized facts.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9947.

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Date of creation: Sep 2003
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Publication status: published as Collins, S. and D. Rodrik (eds.) Brookings Trade Forum 2003. Washington, D.C.: The Brookings Institution, 2004.
Handle: RePEc:nbr:nberwo:9947
Note: ITI PR
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  1. F. Zilibotti & P. Aghion & R. Burgess, 2004. "The Unequal Effects of Trade Liberalization: Theory and Evidence from India," 2004 Meeting Papers 40, Society for Economic Dynamics.
  2. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
  3. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
  4. Martin Stephen, 1993. "Endogenous Firm Efficiency in a Cournot Principal-Agent Model," Journal of Economic Theory, Elsevier, vol. 59(2), pages 445-450, April.
  5. Tybout, James & de Melo, Jamie & Corbo, Vittorio, 1991. "The effects of trade reforms on scale and technical efficiency : New evidence from Chile," Journal of International Economics, Elsevier, vol. 31(3-4), pages 231-250, November.
  6. Tybout, James R, 1992. "Linking Trade and Productivity: New Research Directions," World Bank Economic Review, World Bank Group, vol. 6(2), pages 189-211, May.
  7. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  8. Francesco Daveri & Paolo Manasse & Danila Serra, 2003. "The Twin Effects of Globalization," Working Papers 240, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
  10. Coe, D.T. & Helpman, E., 1993. "International R&D Spillovers," Papers 5-93, Tel Aviv.
  11. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn.
  12. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  13. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, vol. 47(2), pages 321-344, April.
  14. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  15. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
  16. Boone, J., 2000. "Competitive pressure : The effects on investments in product and process innovation," Other publications TiSEM 88418185-7603-4c36-92fd-3, School of Economics and Management.
  17. repec:ner:tilbur:urn:nbn:nl:ui:12-84400 is not listed on IDEAS
  18. Liu, Lili, 1993. "Entry-exit, learning, and productivity change Evidence from Chile," Journal of Development Economics, Elsevier, vol. 42(2), pages 217-242, December.
  19. Vousden, Neil & Campbell, Neil, 1994. "The organizational cost of protection," Journal of International Economics, Elsevier, vol. 37(3-4), pages 219-238, November.
  20. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
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