Firm Entry, Productivity Differentials and Turnovers in Import Substituting Markets: A study of the petrochemical industry in Colombia

This paper analyses plant entry, total factor productivity growth, average productivity level differentials and turnovers across Colombia's petrochemical industry for the 1974-1998 period. Results show that successful entrants shaped industry productivity and induced plant restructuring among incumbent plants. There is consistent plant heterogeneity across plant cohorts as well as across sub-markets within petrochemicals. Entry flows were steady increasing within plastics regardless of trade policy regimes. Survival rates are remarkably high and consistent over time in medium-size plants meaning that entrants adopted competitive post-entry strategies. Total factor productivity growth decomposition shows that the incumbent effect dominates the turnover effect. Market share reallocation among continuing plants constitutes an important source of productivity growth. Econometric results suggest that barriers to entry associated with plant technology licensing and dependence of imported raw materials deter entry while complementary market variables such as industry productivity levels, growth in housing construction, and fringe competition induce firm entry.