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Productivity, imperfect competition, and trade liberalization in Cote d'Ivoire

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  • Harrison, Ann E.

Abstract

This paper analyzes changes in firm behaviour and productivity during trade liberalization in the Code d'Ivoire. For a panel of 287 firms, market power was estimated before and after a trade reform implemented in 1985. The results suggest that price-cost margins fell in a number of sectors following the reform. However, since the reform was accompanied by a real appreciation in the exchange rate, part of the fall in margins was also due to the conjunction of the trade reform with the adverse exchange rate movement. When productivity estimates are modified to account for changes in price-cost margins over the period, the positive correlation between trade reform and productivityis strengthened in some sectors and reversed in others. This paper outlines the theoretical approach and shows how ignoring the effects of liberalization on competition may lead researchers to mismeasure the effect of trade reform on productivity. It discusses trade policy changes in the Cote d'Ivoire and briefly describes the data. The paper presents estimation results and explores the sensitivity of productivity measures to alternative specifications, including the possibility that the technology is characterized by increasing returns to scale.

Suggested Citation

  • Harrison, Ann E., 1990. "Productivity, imperfect competition, and trade liberalization in Cote d'Ivoire," Policy Research Working Paper Series 451, The World Bank.
    • Handle: RePEc:wbk:wbrwps:451
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    References listed on IDEAS

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    1. Julio J. Rotemberg & Lawrence H. Summers, 1988. "Labor Hoarding, Inflexible Prices, and Procyclical Productivity," NBER Working Papers 2591, National Bureau of Economic Research, Inc.
    2. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
    3. Nishimizu, Mieko & Robinson, Sherman, 1984. "Trade policies and productivity change in semi-industrialized countries," Journal of Development Economics, Elsevier, vol. 16(1-2), pages 177-206.
    4. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    5. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," The World Bank Research Observer, World Bank, vol. 3(1), pages 27-57, January.
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    Cited by:

    1. Ali Saggay & Almas Heshmati & Mohamed Dhif, 2007. "Effects of trade liberalization on domestic prices: Some evidence from Tunisian manufacturing," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 54(1), pages 148-175, March.
    2. Tybout, James R., 1991. "Researching the trade - productivity link : new directions," Policy Research Working Paper Series 638, The World Bank.
    3. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August.
    4. Dani Rodrik, 1993. "Trade and Industrial Policy Reform in Developing Countries: A Review of Recent Theory and Evidence," NBER Working Papers 4417, National Bureau of Economic Research, Inc.
    5. Haddad, Mona, 1993. "How trade liberalization affected productivity in Morocco," Policy Research Working Paper Series 1096, The World Bank.
    6. Udi Joshua & Oladimeji M. Salami & Andrew A. Alola, 2020. "Toward the path of Economic Expansion in Nigeria: The Role of Trade Globalization," Working Papers 20/009, European Xtramile Centre of African Studies (EXCAS).

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