Economics at your fingertips  

Trade policies, firm heterogeneity, and variable markups

Svetlana Demidova

Journal of International Economics, 2017, vol. 108, issue C, 260-273

Abstract: We study unilateral trade liberalization in a model of monopolistic competition with heterogeneous firms, endogenous wages, and non-separable and non-homothetic quadratic preferences that generate variable markups. We show that the optimal level of the revenue-generating import tariff is strictly positive so that protection is always desirable, whether the liberalizing economy is large or small. Yet, reductions in cost-shifting trade barriers are welfare-improving, making free trade optimal. Finally, we show that in both cases, variable markups result in negative pro-competitive effects, reducing gains from trade.

Keywords: Variable markups; Firm heterogeneity; Trade liberalization (search for similar items in EconPapers)
JEL-codes: F12 F13 L11 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
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:

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-06-15
Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:260-273