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

  • Harrison, Ann E.

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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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 451.

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Date of creation: 31 Jul 1990
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Handle: RePEc:wbk:wbrwps:451
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  1. 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.
  2. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  3. Bhagwati, Jagdish N, 1988. "Export-Promoting Trade Strategy: Issues and Evidence," World Bank Research Observer, World Bank Group, vol. 3(1), pages 27-57, January.
  4. Dani Rodrik, 1988. "Closing the Technology Gap: Does Trade Liberalization Really Help?," NBER Working Papers 2654, National Bureau of Economic Research, Inc.
  5. Julio J. Rotemberg & Lawrence H. Summers, 1988. "Labor Hoarding, Inflexible Prices, and Procyclical Productivity," NBER Working Papers 2591, National Bureau of Economic Research, Inc.
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