Competition, Markups, and the Gains from International Trade
American Economic Review
vol. 105,
no. 10, October 2015
(pp. 3183-3221)
Abstract
We study the procompetitive gains from international trade in a quantitative model with endogenously variable markups. We find that trade can significantly reduce markup distortions if two conditions are satisfied: (i) there is extensive misallocation, and (ii) opening to trade exposes hitherto dominant producers to greater competitive pressure. We measure the extent to which these two conditions are satisfied in Taiwanese producer-level data. Versions of our model consistent with the Taiwanese data predict that opening up to trade strongly increases competition and reduces markup distortions by up to one-half, thus significantly reducing productivity losses due to misallocation. (JEL D43, F12, F14, L13, L60, O47)Citation
Edmond, Chris, Virgiliu Midrigan, and Daniel Yi Xu. 2015. "Competition, Markups, and the Gains from International Trade." American Economic Review, 105 (10): 3183-3221. DOI: 10.1257/aer.20120549Additional Materials
JEL Classification
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 Empirical Studies of Trade
- L13 Oligopoly and Other Imperfect Markets
- L60 Industry Studies: Manufacturing: General
- O47 Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence