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Ajit Singh, Mr. Rudolph Matthias, and Mr. Jack D. Glen
This large empirical study of corporate profitability in emerging markets during the 1980s and 1990s measures the intensity of competition. Data on corporate rates of return, profit margins, and output-capital ratios reveal that the recent liberalization has been associated with reduced corporate profit margins and improved capital utilization efficiency. The paper also analyzes persistency in corporate profitability and finds that competitiveness was no less intense in developing countries than in advanced countries. Although the paper is not directly concerned with the Asian crisis, it provides evidence on important structural hypotheses about the crisis.
Mr. Federico J Diez, Mr. Daniel Leigh, and Suchanan Tambunlertchai
We estimate the evolution of markups of publicly traded firms in 74 economies from 1980-2016. In advanced economies, markups have increased by an average of 39 percent since 1980. The increase is broad-based across industries and countries, and driven by the highest markup firms in each economic sector. For emerging markets and developing economies, there is less evidence of a rise in markups. We find a positive relation between firm markups and other indicators of market power, such as profits or industry concentration. Focusing on advanced economies, we investigate the relation between markups and investment, innovation, and the labor share at the firm level. We find evidence of a non-monotonic relation, with higher markups being correlated initially with increasing and then with decreasing investment and innovation rates. This non-monotonicity is more pronounced for firms that are closer to the technological frontier. More concentrated industries also feature a more negative relation between markups and investment and innovation. The association between markups and the labor share is generally negative.
International Monetary Fund
This paper shows that the presence of quotas on imported inputs that are based on installed capacity can lead to capacity underutilization in manufacturing industries of developing countries. A replacement of such quotas, by tariffs leads to full capacity utilization under assumptions of both perfectly and imperfectly competitive markets. Furthermore, such a policy also eliminates strategic advantages for oligopolistic firms that arise in quota-based regimes.
International Monetary Fund

regimes are free trade, a tariff on the intermediate input, and a quota on the same input. The production function is now defined as: y i = min[ α x i , β k i ] i=1, 2, ......... n. where the subscript i now stands for the ith firm in a particular industry, y i is output of the ith firm, x i is its intermediate input, and k i , the capital stock. The total output in the industry concerned is denoted by: Y = Σ j n y j j = 1 , 2 , … i , … n . where

Mr. Mark Gersovitz
Tax laws and administrations often treat different size firms differently. There is, however, little research on the consequences. As modeled here, oligopolists with different efficiencies determine the size distribution of firms. A government that maximizes a weighted sum of consumer surplus, profits, and tax receipts can tax firms with different efficiencies differently and provides a reference point for other, more restricted differential tax systems. Taxes include a specific sales tax, an ad valorem sales tax, and a profits tax with imperfect deductibility of capital cost, and a combination of the last two. In general there is a pattern of tax rates by efficiency of firm. It is heavily dependent on the social valuation of tax receipts. Analytic and simulation results are provided. When both ad valorem taxes and the imperfect profits tax are combined, simulations suggest that the former rate is higher and the latter rate is lower for relatively inefficient firms.
International Monetary Fund

value added of the ith firm ( i = 1, ….., N ) at time t, x ijt is a vector of the amount of the j th inputs ( j = 1,… j ) employed in firm i at time t ( t = 1,…., T ), and β 0 and β j represent a vector of technology parameters to be estimated. The compound disturbance is composed of two terms. The first, v it , is a random disturbance assumed to be distributed identically and independently across plants with identical zero mean and constant variance. It represents factors such as luck, weather conditions and unpredicted variation in inputs. The second, u

International Monetary Fund

considerations—of individuals to perfectly diversify bank deposit portfolios, or, similarly, the inability of banks to achieve a perfect diversification of loan portfolios. At time t, the ith individual of the current young invests k t as a loan to firm i at the market-determined interest rate, r t ℓ . Since both creditors (the current young) and borrowers (firms) are homogeneous ex ante, the assumption of perfect competition in credit markets assures a single loan rate. Given that the ith firm is subject to random production shocks, the return on loans to that firm bears

International Monetary Fund

SBIF regularly publishes a risk index for each bank based on the classification of bank assets. 9 The Herfindahl-Hirshman (HHI) index is a measure of market concentration given by HHI =∑s i 2 where s i is the market share of the ith firm. The HHI takes into account the relative size and distribution of the firms in a market and approaches zero when a market consists of a large number of firms of relatively equal size. The HHI increases both as the number of firms in the market decreases and as the disparity in size between those firms increases. Markets

Mr. Federico J Diez, Mr. Daniel Leigh, and Suchanan Tambunlertchai

−0.152*** −0.131*** (0.031) (0.031) Firm FE Yes Yes Yes Time FE Yes Yes Yes Number of observations 57,371 52,319 52,319 R 2 0.228 0.221 0.224 Note: U.S. data. Markup denotes log of markup of ith firm. Additional controls included (Tobin’s Q and sales-to-lagged assets ratio in previous year). Heteroskedasticity-robust standard errors. *** p<0.01, ** p<0.05, * p<0.1. Figure 8. Investment Rate vs. Markup Note: Figure reports fitted value of investment rate vs. markup across