Trade Liberalization in Uruguay: Domestic and Foreign Firms
Walter Garcia Fontes
The reallocation of resources is one of the main impacts of trade liberalization processes. In the case of manufacturing industries resources will be reallocated from import--competing sectors to export--oriented sectors. This paper studies the effects that a more open economic environment has had on the entry conditions for foreign and domestic firms in Uruguayan manufacturing industries. We find significant differences in the behavior of foreign and domestic firms, both when they are incumbents or when they act as potential entrants. In general, foreign firms seem to be more successful in applying entry deterring strategies, due to advantages in foreign markets, deeper financial resources or better technological capabilities. They also appear to be more responsive to entry conditions when they face the prospects of entering a given industry.
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