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CHAPTER 1: PRO-COMPETITVE EFFECT OF TRADE

CHAPTER 1: PRO-COMPETITVE EFFECT OF TRADE. 1A: Imports as market discipline 1B: Empirical evidence 1C: Heterogeneity of firms, productivity, mark-ups Paper analysis: Bernard, Jensen & Schott (2006) Globalisation and labour markets, H. Boulhol. 1B: Empirical evidence.

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CHAPTER 1: PRO-COMPETITVE EFFECT OF TRADE

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  1. CHAPTER 1:PRO-COMPETITVE EFFECT OF TRADE 1A: Imports as market discipline 1B: Empirical evidence 1C: Heterogeneity of firms, productivity, mark-ups Paper analysis: Bernard, Jensen & Schott (2006) Globalisation and labour markets, H. Boulhol

  2. 1B: Empirical evidence • Trade liberalisation episodes in developing countries seem to have triggered decreases in market power e.g. in Turkey, Ivory Coast, India, Chile, Colombia, etc., see Roberts and Tybout, 1996 • Developing and developed countries, see survey in Boulhol (2008b) • Overall: some evidence, not as overwhelming as often claimed

  3. 1B: Determinants (of the size) of trade impact • Intensity of domestic competition: nature of firms’ interactions, concentration • Lower domestic competition, greater impact of trade • Price elasticity of final demand: greater elasticity, lower initial mark-up, lower impact • Elasticity of substitution between varieties: for a given intensity of competition, the higher the elasticity, the greater the impact (however, no effect under monopolistic competition, whathever the elasticity of substitution)

  4. 1B: Size in theory (Boulhol, 2008b) • Monopolistic or Bertrand competition = 0 • Cournot competition, Herf = 0.2 , elast. subst. = 8 Then PCM (autarky) = 0.30 and an increase of 0.10 in the import ratio reduces PCM by around 0.02

  5. 1B: Order of magnitude

  6. 1B: Trends in price-cost margins • No overall decline • Convergence both: • across sectors within countries • across countries within sectors Low PCMs have increased on average High PCMs have decreased on average Driver: capital mobility between sectors and countries?

  7. 1B: Price-Cost Margin(Aggregate Manufacturing )

  8. 1B: France: Convergence of Price-Cost Margins

  9. 1B: France: Convergence of Price-Cost Margins

  10. 1B: France: Convergence of Price-Cost Margins

  11. 1B: Convergence of price-cost margins

  12. Distribution of Price-Cost Margins in 1970, 1980 and 2000, developed countries, two-digit

  13. 1B: Pro-competitve effect of imports • Potential offsetting factors: • Exports • Workers’ bargaining power • Defensive behaviour (merger and acquisitions) • Financial liberalisation through lower cost of capital? • Disinflation in presence of price rigidities • Empirical difficulty: endogeneity of import High margins may attract foreign firms, thereby leading to an increase in imports

  14. 1B: Determinants of PCMs

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