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

Author(s): Massimo Del Gatto, Gianmarco Ottaviano, Marcello Pagnini
Publication Date: June 2007
Keyword(s): Cost dispersion, firm selection, firm-level data, openness to trade, total factor productivity
JEL(s): F12, F15, R13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6336

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.