Competition, selection, and productivity growth in the Chilean manufacturing industry

Abstract

Competition is considered as a key driver of productivity growth. However, the empirical evidence on its impact is scant in developing countries. Using information from manufacturing plants for the period 1995-2007, we analyze the impact of competition on firm selection and productivity growth in Chile. Our results indicate that competition has a positive effect on total factor productivity (TFP) growth, especially for laggard firms. We find weaker evidence that competition affects the probability of exit for low-productivity firms. In general, these results for productivity growth are robust to alternative methodologies for calculating productivity and to the inclusion of other variables that may affect firms' TFP growth. We find support for Schumpeterian forces, but the quantitative impact is small.