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Productivity spreads, market power spreads and trade

Martin, Ralf (2010) Productivity spreads, market power spreads and trade. CEP Discussion Papers (CEPDP0997). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Much of recent Trade theory focuses on heterogeneity of firms and the differential impacttrade policy might have on firms with different levels of productivity. A common problem isthat most firm level dataset do not contain information on output prices of firms which makesit difficult to distinguish between productivity differences and differences in market powerbetween firms. This paper develops a new econometric framework that allows estimatingboth firm specific productivity and market power in a semi-parametric way based on acontrol function approach. The framework is applied to Chilean firm level data from the early1980, shortly after the country underwent wide ranging trade reforms. The finding is that inall sectors of the economy market power declined and productivity increased. In sectors withhigher import penetration productivity particularly at the bottom end of the distributionincreased faster. At the same time market power declined particularly so at the top end of themarket power distribution. We also show, that ignoring the effect on market power leads toan underestimation of the positive effects of increased import penetration on productivity.

Item Type: Monograph (Report)
Official URL:
Additional Information: © 2010 The Author
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HF Commerce
JEL classification: C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology; Computer Programs > C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales
Date Deposited: 28 Feb 2013 16:42
Last Modified: 16 May 2024 13:17

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