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

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

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)

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

1B: Order of magnitude

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?

1B: Price-Cost Margin (Aggregate Manufacturing )

1B: France: Convergence of Price-Cost Margins

1B: Convergence of price-cost margins

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

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

1B: Determinants of PCMs