Globalization, market power and innovation

There is increasing concern that market power has increased across advanced countries (Autor et al. 2018, de Loecker et al. 2018, Philippon, 2019). However, the underlying reasons are not fully understood yet. Candidate explanations include technology (Aghion et al. 2019, Akcigit and Ates, 2019), globalisation and regulatory capture (Philippon and Gutierrez, 2018). In this project we plan to analyse the globalisation angle in particular by examining what happened to firms' market power (measured using Lerner index style measures and markups) when the single market emerged and expanded in the 90s and 00s dur to the integration of Eastern Europe. It focuses on the link between the sharp increase in the French export 2/4 share and measures of market power at the sectoral level. We also analyse the impact of trade on firm-level and aggregate innovation and productivity performance. We will rely primarily on official French firm level data (from INSEE/DGFIP). This provides information on firm level exports which will give us a measure of the relevance of the Eastern European market integration for different firms. We will also take into account firm level patenting. The joint focus on the implications of trade for market power and innovcation is motivated by the need to assess whether the changes in market power are related to changes in pure economic rents or to successful innovation decisions. Finally, we plan to build a model in which market power and innovation respond endogenously to trade and use it to shape and interpret the empirical results.

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