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Markups, Market Imperfections, and Trade Openness : Evidence from Ghana

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  • Damoah,Kaku Attah

Abstract

This paper investigates the impact of Ghana's World Trade Organization (WTO) accession on firm-level product and labor market imperfections. The paper exploits a rich dataset of firm-level information to estimate both markups and the degree of monopsony power enjoyed by manufacturing firms. The results indicate that price-cost margins declined while the degree of monopsony power increased in the wake of WTO accession. These diverging dynamics suggest that firms compress real wages to offset loss of market power in the product market due to increased international competition. This gives rise to an increase in the market imperfection gap, which gradually erodes the pro-competitive gains from trade. The paper contributes to the literature by identifying channels through which allocative inefficiencies and misallocation can persist even after trade liberalization.

Suggested Citation

  • Damoah,Kaku Attah, 2019. "Markups, Market Imperfections, and Trade Openness : Evidence from Ghana," Policy Research Working Paper Series 9079, The World Bank.
  • Handle: RePEc:wbk:wbrwps:9079
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    References listed on IDEAS

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    1. Jan De Loecker, 2011. "Product Differentiation, Multiproduct Firms, and Estimating the Impact of Trade Liberalization on Productivity," Econometrica, Econometric Society, vol. 79(5), pages 1407-1451, September.
    2. Sabien Dobbelaere & Jacques Mairesse, 2013. "Panel data estimates of the production function and product and labor market imperfections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 1-46, January.
    3. Stefano Schiavo & Lionel Nesta, 2017. "International Competition and Rent Sharing in French Manufacturing," DEM Working Papers 2017/07, Department of Economics and Management.
    4. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    5. 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.
    6. Jan De Loecker & Catherine Fuss & Jo Van Biesebroeck, 2014. "International competition and firm performance: evidence from Belgium," Working Papers of Department of Economics, Leuven 553099, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International Trade and Trade Rules; Rural Labor Markets; Labor Markets; Common Carriers Industry; Food&Beverage Industry; Construction Industry; Business Cycles and Stabilization Policies; Plastics&Rubber Industry; Pulp&Paper Industry; Textiles; Apparel&Leather Industry; General Manufacturing; Trade Policy; Trade and Multilateral Issues; Rules of Origin;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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