Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms
43 Pages Posted: 17 Oct 2007
Date Written: June 2007
We use Italian firm-level data to investigate the impact of trade openness on the distribution of firms across marginal cost levels. In so doing, we implement a procedure that allows us to control not only for the standard transmission bias identified in firm-level TFP regressions but also for the omitted price bias due to imperfect competition. We find that more open industries are characterized by a smaller dispersion of costs across active firms. Moreover, in those industries the average cost is also smaller.
Keywords: Cost dispersion, openness to trade, firm-level data, firm selection, total factor productivity
JEL Classification: F12, F15, R13
Suggested Citation: Suggested Citation