Competition, Markups, and the Gains from International Trade

Edmond, Chris; Midrigan, Virgiliu and Xu, Daniel Yi (July 2013) Competition, Markups, and the Gains from International Trade. Former Series > Working Paper Series > IHS Economics Series 299


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Abstract: We study the gains from trade in a model with endogenously variable markups. We show that the pro-competitive gains from trade are large if the economy is characterized by (i) extensive misallocation, i.e., large inefficiencies associated with markups, and (ii) a weak pattern of cross-country comparative advantage in individual sectors. We find strong evidence for both of these ingredients using producer-level data for Taiwanese manufacturing establishments. Parameterizations of the model consistent with this data thus predict large pro-competitive gains from trade, much larger than those in standard Ricardian models. In stark contrast to standard Ricardian models, data on changes in trade volume are not sufficient for determining the gains from trade.;

Item Type: IHS Series
Keywords: 'Productivity' 'Misallocation' 'Comparative advantage' 'Intra-industry trade'
Classification Codes (e.g. JEL): F1, O4
Date Deposited: 26 Sep 2014 10:39
Last Modified: 27 Sep 2019 06:17
ISBN: 1605-7996

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