TY - JOUR AU - Eslava,Marcela AU - Haltiwanger,John C. AU - Kugler,Adriana D. AU - Kugler,Maurice TI - Trade Reforms and Market Selection: Evidence from Manufacturing Plants in Colombia JF - National Bureau of Economic Research Working Paper Series VL - No. 14935 PY - 2009 Y2 - April 2009 UR - http://www.nber.org/papers/w14935 L1 - http://www.nber.org/papers/w14935.pdf N1 - Author contact info: Marcela Eslava Universidad de Los Andes Carrera 1 Este No 18 A -70. Bloque C Bogota, Colombia Tel: 571-339-4949 Fax: 571-332-4492 E-Mail: meslava@uniandes.edu.co John C. Haltiwanger Department of Economics University of Maryland College Park, MD 20742 Tel: 301/405-3504 Fax: 301/405-3542 E-Mail: haltiwan@econ.umd.edu Adriana D. Kugler Georgetown University Georgetown Public Policy Institute 37th and O Streets NW, Suite 311 Washington, DC 20057 Tel: 202/687-5716 Fax: 202/687-5544 E-Mail: ak659@georgetown.edu Maurice Kugler JFK School of Government Harvard University 79 JFK Street Cambridge, MA 02138 Tel: 617/496-0897 Fax: 617/496-8753 E-Mail: maurice.kugler@gmail.com AB - We use plant output and input prices to decompose the profit margin into four parts: productivity, demand shocks, mark-ups and input costs. We find that each of these market fundamentals are important in explaining plant exit. We then use variation across sectors in tariff changes after the Colombian trade reform to assess whether the impact of market fundamentals on plant exit changed with increased international competition. We find that greater international competition magnifies the impact of productivity, and other market fundamentals, on plant exit. A dynamic simulation that compares the distribution of productivity with and without the trade reform shows that improvements in market selection from trade reform help to weed out the least productive plants and increase average productivity. In addition, we find that trade liberalization increases productivity of incumbent plants and improves the allocation of activity within industries. ER -