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The Influence of Increased Foreign Competition on Industrial Concentration and Profitability

In: Developing Countries in the World Economy

Author

Listed:
  • Jaime de MELO
  • Shujiro URATA

Abstract

This paper uses the Chilean manufacturing censuses of 1967 and 1979 to examine the effects of the Chilean reforms in the mid~1970s on market structure and performance. The reforms substantially increased the concentration in industry and substantially reduced profitability. These outcomes are interpreted in the light of hypotheses about the effect of potential entrants on market structure and on the pricing behavior of incumbents. Next, a cross-sectoral simultaneous equations model of structure and performance is estimated to isolate the contribution of import and export shares to cross-sectoral variations in concentration and profitability and to test for structural change between the two censuses. The analysis confirms that the liberalization of trade changed the way import and export shares determined profitability and supports the import discipline hypothesis.

Suggested Citation

  • Jaime de MELO & Shujiro URATA, 2015. "The Influence of Increased Foreign Competition on Industrial Concentration and Profitability," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 9, pages 219-236, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814494908_0009
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    Keywords

    Trade Barriers and Market Structure; Quantitative Restrictions; Political Economy and Migration; Trade and the Environment;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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