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