Productivity spreads, market power spreads and trade

Ralf Martin

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: 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.

Keywords: Trade policy; productivity measurement; imperfect competition; productivity dispersion; productivity spread (search for similar items in EconPapers)
JEL-codes: C81 D24 L11 L25 (search for similar items in EconPapers)
Date: 2010-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://eprints.lse.ac.uk/48912/ Open access version. (application/pdf)

Related works:
Working Paper: Productivity Spreads, Market Power Spreads and Trade (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:48912

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().