Business Intelligence

Trade Reforms And Market Selection: Evidence From Manufacturing Plants In Colombia

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Executive Summary

The authors use plant output and input prices to decompose the profit margin into four parts: productivity, demand shocks, mark-ups and input costs. They find that each of these market fundamentals is important in explaining plant exit. They then use variation across sectors in tariff changes after the Colombian trade reform to assess whether the impact of market fundamentals on plant exit changed with increased international competition. They find that greater international competition magnifies the impact of productivity, and other market fundamentals, on plant exit.

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