Price-Cost Margins and Trade Liberalization in Turkish Manufacturing Industry : A Panel Data Analysis

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26 citations0/0 files storedRePEc: Research Papers in Economics

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Global trade and economics Merger and Competition Analysis Economics of Agriculture and Food Markets

Abstract

In the second half of 1980s, Turkey has experienced foreign trade liberalization within a broader framework of an overall liberalization program. In this study, the impacts of the market structure and the foreign trade reforms on the domestic market performance are discussed in the context of the structure-performance model. In this context, the import discipline hypothesis, the import penetration due to the foreign trade liberalization removes excess profits of domestic firms in oligopolistic markets and leads to relatively competitive market and improvement in allocative and production efficiency, is tested by using panel data of ISIC four-digit level of Turkish manufacturing industries for the period of 1983-1994. The analysis is performed for the public and private sectors separately. Estimation procedure is carried out by using Fixed Effect and Random Effect Models in panel data analysis. In addition, Two Stage Least Square (TSLS) estimation procedure is carried out to avoid biased coefficients resulting from the endogenous explanatory variables. The price-cost margins are regressed on the variables that reflect foreign trade structure, market power, entry barriers and demand, cost and input availability conditions. The results of the analysis are substantially different for the private and public sectors. While import penetration leads to a decrease in the price-cost margins in the entire private sector, the price-cost margins in the highly concentrated private sector industries increase by the import penetration. Unlike the private sector, import penetration and export expansion result in a decline of excess profits in the concentrated public sector industries.

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References

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