Trade Liberalization and Industrial Concentration: Evidence from Brazil

This paper applies an endogenous lobby formation model to explain the extent of trade protection granted to Brazilian manufacturing industries during the 19881994 trade liberalization episode. Using a panel data set covering this period, we find that even in an environment in which a major regime shift has been introduced, more concentrated sectors have been able to obtain policy advantages, that lead to a reduction in international competition. The importance of industry structure appears to be substantial: In our baseline specification, an increase in concentration by 20% leads to an increase in protection by 5%-7%. JEL Classification: F13. ∗Some of the ideas of this paper were fostered during conversations with Boyan Jovanovic, to whom we wish special thanks. We gratefully acknowledge the comments of Werner Baer, Andrew Horowitz, Joao Issler, Leonardo Rezende and Cecilia Testa, and seminar audiences at Torquato di Tella, Lacea Conference in Rio de Janeiro, USP, IPEA, University of Southern Illinois and the Hewlett Foundation Brazilia meeting. Many thanks to Honorio Kume and Gilson Geraldino da Silva from some of the data used, and CNPq, PRONEX (Ferreira) and the Hewlett Foundation (Facchini) for financial support.