Foreign trade elasticities and import discipline
This paper provides new evidence on the 'trade-as-discipline' hypothesis by considering the determination of price - cost margins with a panel of 41 four-digit US food manufacturing industries from 1972 to 1987. Following the empirical specification suggested by competitive fringe oligopoly models, we include estimated domestic demand elasticities and cross-price elasticities of import demand as explanatory variables, and the empirical results confirm the importance of these variables in assessing the hypothesis.
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