Competition, Markups, and the Gains from International Trade

Chris Edmond, Virgiliu Midrigan and Daniel Yi Xu
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Daniel Yi Xu: Department of Economics, Duke University, Durham, USA

No 299, Economics Series from Institute for Advanced Studies

Abstract: We study the gains from trade in a model with endogenously variable markups. We show that the pro-competitive gains from trade are large if the economy is characterized by (i) extensive misallocation, i.e., large inefficiencies associated with markups, and (ii) a weak pattern of cross-country comparative advantage in individual sectors. We find strong evidence for both of these ingredients using producer-level data for Taiwanese manufacturing establishments. Parameterizations of the model consistent with this data thus predict large pro-competitive gains from trade, much larger than those in standard Ricardian models. In stark contrast to standard Ricardian models, data on changes in trade volume are not sufficient for determining the gains from trade.

Keywords: Productivity; misallocation; comparative advantage; intra-industry trade (search for similar items in EconPapers)
JEL-codes: F1 O4 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2013-07
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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https://irihs.ihs.ac.at/id/eprint/2211 First version, 2013 (application/pdf)

Related works:
Journal Article: Competition, Markups, and the Gains from International Trade (2015)
Working Paper: Competition, Markups, and the Gains from International Trade (2013)
Working Paper: Competition, Markups, and the Gains from International Trade (2012)
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