Markups Dispersion and Firm Entry: Evidence from Ethiopia

Kaku Attah Damoah, Giorgia Giovannetti () and Marco Sanfilippo

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: This paper examines if and to what extent micro-level distortions affect structural transformation in a developing country by creating entry barriers. We show that while average price-cost margin trigger firm entry, a large dispersion of markups deters new firms from entering the market, thereby disrupting the process of new enterprise creation. We exploit information from the Ethiopian annual census of manufacturing establishments to estimate markups and then dispersion at sector and location-sector wide levels. Results show that higher markups dispersion significantly reduces entry rate into a market even in presence of expected positive average markups. Extension of our framework shows that market distortions caused by markup dispersion are related to a statistically significant drop in aggregate TFP and employment growth. Policies fostering competition on the other hand can reduce entry barriers created by market distortions.

Keywords: Firm Entry; Markup Dispersion; African Manufacturing; Ethiopia (search for similar items in EconPapers)
JEL-codes: D22 L22 O14 O25 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2018
New Economics Papers: this item is included in nep-com, nep-sbm and nep-tid
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Related works:
Journal Article: Markup Dispersion and Firm Entry: Evidence from Ethiopia (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:frz:wpaper:wp2018_16.rdf

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