Markup dispersion and firm entry : evidence from Ethiopia

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0305-9049; 1468-0084
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Oxford bulletin of economics and statistics, 2021, Vol. 83, No. 2, pp. 299-327
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DAMOAH, Kaku Attah, GIOVANNETTI, Giorgia, SANFILIPPO, Marco, Markup dispersion and firm entry : evidence from Ethiopia, Oxford bulletin of economics and statistics, 2021, Vol. 83, No. 2, pp. 299-327 - https://hdl.handle.net/1814/70080
Abstract
This paper examines whether and to what extent markups can influence structural transformation in a developing country by creating entry barriers. We exploit information from the Ethiopian annual census of manufacturing establishments to estimate markups and their dispersion at industry and woreda-industry-wide levels. We then analyse the relationship between markup dispersion and firm entry rates in local markets. Results show that higher markup dispersion significantly correlates with lower entry rates into a market, even in the presence of expected positive average markups. Specifically, an increase in dispersion from its median to the values at the 90(th)percentile of the distribution is related to a 4.2% point lower entry rate. This result is robust to different estimation methods as well as to different definitions of the key variables.
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First published online: 09 July 2020