DP6336 Openness to Trade and Industry Cost Dispersion: Evidence from a Panel of Italian Firms

• Marcello Pagnini Gianmarco Ottaviano Massimo Del Gatto
15 Jun 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.