Lower Bounds of Concentration in a Small Open Economy

We examine how Sutton’s “bounds” approach works in a small country where industries have relatively high export and import intensities. The bounds are estimated as stochastic frontiers, where observable industry characteristics, entry barriers, and export intensity are allowed to affect the mean and variance of the deviations from the frontier. In accordance with the theory, high R&D intensity industries have a lower bound for concentration, which is higher than that for exogenous sunk cost industries. For high advertising industries the theory does not hold as well.