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Trade Liberalization and Industry Dynamics: A Difference in Difference Approach

Roberto Alvarez () and Ricardo López

No 2008-009, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: Recent models of trade with firm heterogeneity predict that opening to trade reduces the number of firms, increases the average size of firms, and decreases firms’ markups. This paper uses a large dataset for 28 manufacturing industries and 46 countries to test these predictions. The econometric analysis based on the treatment effects literature shows that on average, trade liberalizations do not decrease the number of firms nor increase the average size of firms. Markups appear to decrease during the three years after the liberalization. We also find that the number of firms and the average size of firms increase in comparative advantage industries.

Keywords: Trade Liberalization; Industry Dynamics; Treatment Effects (search for similar items in EconPapers)
JEL-codes: F10 L11 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2008-04
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