Empirical evidence for the procompetitive effects of trade

Asha Sundaram

Chapter 10 in Elgar Encyclopedia of International Trade, 2026, pp 42-47 from Edward Elgar Publishing

Abstract: This entry surveys empirical evidence on the procompetitive effects of trade, with a focus on how trade liberalization shapes both the level and distribution of firm markups. Reduced-form studies consistently find that greater import competition lowers markups, supporting a procompetitive effect. Structural models using quantitative trade frameworks offer more nuanced results, showing that trade can reduce or raise markups depending on the nature of competition, trade policy design, and market structure. The entry highlights that while trade may reduce average markups, it can also alter the dispersion of markups across firms, with implications for misallocation and welfare. The entry also explores feedback loops through innovation and the indirect effects of trade on market power, including through increases in input market concentration. Evidence from developing countries remains limited, underscoring the need for further research on how domestic institutions and complementary policies shape the relationship between trade and competition.

Keywords: Trade Liberalization; Markups; Misallocation; Welfare (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035327492
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