DP 0264 - Trade and Competition: Mark-Ups, Concentration, and International Orientation – Discussion and Empirical Tests for Brazilian Manufacturing Sectors

Abstract

This paper discusses the relation between trade and competition, revising the literature and using indicators, build with Brazilian industrial survey (PIA/IBGE) and foreign trade (Comtrade) data. The premise is that the structure of domestic competition is explained by concentration indices, such as CR4 and HHI, which show positive correlation with profit margins of the Brazilian manufacturing sector. Other indicators exert negative effects on the dependent variable – the mark-up –, prices in excess to costs (PCM), among of which stand out import penetration and the export orientation of sectors. In addition to these, investment propensity (entry) and the labor factor wield negative effects on the dependent variable. The exercise is based on a recent literature relating mark-ups, market concentration and globalization processes (investment, trade) in the world economy. Our purpose is to extend these discussions and findings to the Brazilian case. Empirical results show relevant statistical significance of explanatory variables in different estimation methods (OLS, Fixed and Random Panel, GMM). Though there are empirical regularities, some methodological limitations suggest the application of instrumental variables, build with UNCTAD data. The fundamental goal is to indicate possible methodologies and discussions for evaluating trade and competition policies in the context of the Brazilian economy.