Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market

Benedikt Heid and Frank Stähler

Economic Modelling, 2024, vol. 131, issue C

Abstract: The structural gravity model is the workhorse model in international trade to estimate the drivers of trade costs. We propose a new gravity estimation procedure that allows us to disentangle exogenous trade costs and endogenous aggregate markups under oligopoly. Our method can be easily implemented in standard gravity data sets, and we illustrate it by analyzing the competition and welfare effects of the European Single Market. We find that abolishing the European Single Market would increase domestic aggregate markups in EU member countries by 2 to 6 percent. Welfare effects of trade liberalization are larger due to changes in competition among domestic and foreign firms. Our findings highlight that evaluations of trade policy changes and trade cost reductions should also consider their effects on competition.

Keywords: Trade; Gravity; Imperfect competition; Market power; Oligopoly; European Single Market; European Union (search for similar items in EconPapers)
JEL-codes: F10 F12 F14 F15 F17 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999323004169
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Structural Gravity and the Gains from Trade under Imperfect Competition: Quantifying the Effects of the European Single Market (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004169

DOI: 10.1016/j.econmod.2023.106604

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().