MARKET-DISCIPLINE EFFECTS OF TRADE LIBERALIZATION: MICRO-LEVEL EVIDENCE FROM ECUADOR , 1997-2003

This paper analyses pro-competitive effects of increased trade openness in the manufacturing industry in Ecuador. The data comes from the survey of manufacturing and mining industries in Ecuador for the years 1997-2003. Estimation procedures on both industry- and establishment-level data try to identify trade policy effect on price-cost margins, using import penetration as the trade variable, and controlling for a number of industry-specific effects that may affect profitability. The results suggest that there has been a market-discipline effect of trade liberalization in Ecuador: there is a reduction in price-cost margins when import penetration increases, especially in manufacturing establishments with larger market shares.