Competition, Markups, and Gains from Trade: A Quantitative Analysis of China Between 1995 and 2004

Wen-Tai Hsu, Yi Lu and Guiying Wu ()

No 2-2019, Economics and Statistics Working Papers from Singapore Management University, School of Economics

Abstract: This paper provides a quantitative analysis of gains from trade in a model with head-to-head competition using Chinese firm-level data from Economic Censuses in 1995 and 2004. We find a significant reduction in trade cost during this period, and total gains from such improved openness during this period is 7.1%. The gains are decomposed into a Ricardian component and two pro-competitive ones. The procompetitive effects account for 20% of the total gains. Moreover, the total gains from trade are 13 - 31% larger than what would result from the formula provided by ACR (Arkolakis, Costinot, and Rodríguez-Clare 2012), which nests a class of important trade models, but without pro-competitive effects. We find that head-to-head competition is the key reason behind the larger gains, as trade flows do not reflect all of the effects via markups in an event of trade liberalization. One methodological advantage of this paper’s quantitative framework is that its application is not constrained by industrial or product classifications; thus it can be applied to countries of any size.

Keywords: Gains from trade; Markups; Pro-competitive effects; ACR formula; Head-to-head competition; Chinese economy (search for similar items in EconPapers)
Pages: 75 pages
Date: 2019-01-11
New Economics Papers: this item is included in nep-cna, nep-int, nep-sea and nep-tra
Note: Revised version of Working Paper 12-2017
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Related works:
Journal Article: Competition, markups, and gains from trade: A quantitative analysis of China between 1995 and 2004 (2020)
Working Paper: Competition, Markups, and Gains from Trade: A Quantitative Analysis of China Between 1995 and 2004 (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:smuesw:2019_002

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