The Macroeconomic Consequences of Product and Labor Market Power in Developing Economies

• Grant number: 24/20171-9
• Support Opportunities: Regular Research Grants
• Start date: May 01, 2025
• End date: April 30, 2028
• Field of knowledge: Applied Social Sciences - Economics - Growth, Fluctuations and Economic Planning
• Principal Investigator: Tomás Rodriguez Martinez
• Grantee: Tomás Rodriguez Martinez
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated researchers: Alexandre Balduino Sollaci ; Andre Victor Doherty Luduvice ; Cezar Augusto Ramos Santos ; Marco Antonio Cesar Bonomo ; Ursula Mattioli Mello

Abstract

Recent papers have documented a notable increase in the market power of large firms in developed countries, linking to the stagnation of aggregate total factor productivity and the decline in business dynamism. Yet, little is known about the aggregate trends in product and labor market power and their consequence in developing economies. This project aims to: (i) document the stylized facts concerning product and labor market power and changes in business dynamism in Brazil; (ii) understand the potential drivers of these changes, focusing on institutional factors such as policy reforms, regulations, labor supply, and technological developments; and (iii) investigate the macroeconomic consequences of market power, particularly its interactions with factors specific to developing countries, such as financial frictions and informality. Using administrative data, we will construct a dataset containing firm-level information on markups, markdowns, and employment. This data will be combined with structural models to produce three academic papers addressing policy issues and characteristics of developing economies: (i) the interaction between product market power and informality; (ii) the effect of the minimum wage on business dynamism; and (iii) the intersection between labor market power and financial frictions. (AU)