The cement exports of the nearest neighbor are negatively related to costs in both models, as already explained in Section 2.3 and demonstrated indirectly in Figure 5.

In both models, the exchange rate, which may affect the price of imported inputs, does not appear to relate to the price, though the diesel price is a significant contributor to costs, pointing to an important role of transportation costs for cement, which is heavy and also has a low value per unit of weight compared to many other goods.<sup>19</sup> The model includes kilometers of road per square kilometer of land, which summarizes the quality of national road infrastructure (Meijer, Huijbregts, Schotten and Schipper, 2018). This variable has the negative coefficient that is statistically significant in the Conduct model, suggesting that in addition to the price of diesel, the quality of domestic infrastructure is associated with lower end-consumer prices. A dummy for the presence of gypsum deposits in the country (US Geological Survey, 2020) is not significant, suggesting that local supplies of this cement are not a major determinant of prices. The model also includes the Z-score of the rule of law a generic control for the quality of national institutions (Kraay, Kaufmann and Mastruzzi, 2010). This variable has an a priori ambiguous influence on marginal cost. On the one hand, greater rule of law could lower cost, for instance by facilitating contracting with suppliers or reducing expropriation risk. On the other hand, it could be associated with higher income per capita and wages (Acemoglu, Johnson and Robinson, 2005) and thus higher cost. Either way, this variable has a negative coefficient, though it is not statistically significant. In the Conduct model, where overidentifying restrictions yields more precise estimates, the coefficients on the cement exports of the nearest neighbor, the price of diesel, and road density are statistically significant at 1 percent, whereas the coefficient on the exchange rate, gypsum deposits, and rule of law remains statistically insignificant and falls closer to zero.

Turning to economies without domestic production capacity, we find that they are, as expected, qualitatively different from economies with domestic production capacity.<sup>20</sup> When calculated at average values of the covariates in both samples, marginal costs are 8.9 percent higher on average in countries with no domestic production capacity. Excluding the exchange rate, costs in these markets have also fallen over time.

**Fixed Costs.** Estimates of the entry condition (Equation (12)), indicate that (the log of) fixed entry costs in the average market are positive and precisely estimated, with a constant

> 19When including price of electricity in addition to the price of diesel in the marginal cost function and estimating on the smaller sample of economies where both variables are available, the coefficient on the price of electricity is not statistically significant, though the coefficient on the price of diesel remains so.

> 20The precision of the marginal cost coefficient estimates in these economies is lower as expected given that there are only 13 such economies in our sample.

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