Markup Dispersion and Firm Entry: Evidence from Ethiopia

This paper examines whether and to what extent markups can in uence structural transformation in a developing country by creating entry barriers. We exploit information from the Ethiopian annual census of manufacturing establishments to estimate markups and their dispersion at sector and location-sector wide levels. We then analyse the relation between markups dispersion and rm entry rates in local markets. Results show that higher markups dispersion signicantly correlates with lower entry rates into a market even in the presence of expected positive average markups. Specifically, an increase in dispersion from its median to the values at the 90th percentile of the distribution is related to a 4.2 percentage points lower entry rate. This relation is robust to dierent estimation methods as well as to dierent denitions of the key variables.