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The Effects Of Privatization And International Competitive Pressure On Firms’ Price-Cost Margins: Micro Evidence From Emerging Economies1

  • Jozef Konings

    ()

  • Patrick Van Cayseele
  • Frederic Warzynski

This paper uses representative firm level panel data of 1,701 Bulgarian and 2,047 Romanian manufacturing firms to estimate price-cost margins and to analyze how these are affected by privatization and increased competitive pressure. The estimation method used, which is based on Roeger (1995), deals with potential endogeneity problems that are associated with estimating firm performance, by making use of the properties of the primal and dual Solow residual. We find that privatization is associated with higher price-cost margins in both Bulgaria and Romania. Moreover, foreign owned firms have higher markups than domestic privatized firms. Our results suggest that the sequencing of reforms, such as demonopolization prior to privatization and the establishment of competition policy, may be important. In addition, our results give support to the idea that opening to trade has a disciplining effect on firms’ market power. We find that increased import penetration is associated with lower price-cost margins in sectors where product market concentration is relatively high. Our results can be of relevance for other emerging economies, such as China and Vietnam, which still have to undergo major privatization programs.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp603.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-603.

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Length: 47 pages
Date of creation: 01 Jan 2003
Date of revision:
Handle: RePEc:wdi:papers:2003-603
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  1. James R. Tybout, 2001. "Plant- and Firm-Level Evidence on "New" Trade Theories," NBER Working Papers 8418, National Bureau of Economic Research, Inc.
  2. Lubomir Lizal & Miroslav Singer & Jan Svejnar, 2001. "Enterprise Breakups And Performance During The Transition From Plan To Market," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 92-99, February.
  3. Rafael La Porta & Florencio López-De-Silanes, 1999. "The Benefits Of Privatization: Evidence From Mexico," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1193-1242, November.
  4. Dewatripont, Mathias & Roland, Gérard, 1991. "The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy," CEPR Discussion Papers 538, C.E.P.R. Discussion Papers.
  5. Chang-Tai Hsieh, 2002. "What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets," American Economic Review, American Economic Association, vol. 92(3), pages 502-526, June.
  6. Joaquim Oliveira Martins & Stefano Scarpetta, 1999. "The Levels and Cyclical Behaviour of Mark-ups Across Countries and Market Structures," OECD Economics Department Working Papers 213, OECD Publishing.
  7. Adachi, Mitsutoshi M., 2000. "Product Market Competition in Transition Economies: Increasing Varieties and Consumer Loyalty," Journal of Comparative Economics, Elsevier, vol. 28(4), pages 700-715, December.
  8. 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.
  9. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August.
  10. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  11. Mathias Dewatripont & Gérard Roland, 1995. "The design of reform packages under uncertainty," ULB Institutional Repository 2013/9607, ULB -- Universite Libre de Bruxelles.
  12. Blanchard, Olivier Jean, 1994. "Transition in Poland," Economic Journal, Royal Economic Society, vol. 104(426), pages 1169-77, September.
  13. Jean Tirole, 1991. "Privatization in Eastern Europe: Incentives and the Economics of Transition," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 221-268 National Bureau of Economic Research, Inc.
  14. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
  15. Lubomír Lízal & Jan Svejnar, 2002. "Investment, Credit Rationing, And The Soft Budget Constraint: Evidence From Czech Panel Data," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 353-370, May.
  16. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  17. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  18. Saul Estrin, 2002. "Competition and Corporate Governance in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 101-124, Winter.
  19. 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 921-47, October.
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