On Trade Models with Variable Markups and Pareto-Distributed Productivity

Ikuto Aiba and Atsushi Tadokoro

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: We provide more generalized properties of gains from trade and trade liberalization in monopolistic competition models featuring firm heterogeneity characterized as Paretodistributed productivity and variable markups associated with pro-competitive effects. For a large class of utility functions thatwe consider, firmheterogeneity alters the nature of markup distortion that should be addressed by the pro-competitive effects. Our finding implies that the pro-competitive effects of trade are not effective in correcting such markup distortion unique to heterogeneous firm frameworks. As a result, gains from trade in our framework are characterized as consumption variety expansion and selection effects without efficiency gains. We provide rich insights into the varying impacts of trade and trade liberalization across countries with differences in factors such as market size, technology, and geography.

Keywords: Monopolistic competition; Firm heterogeneity; Efficiency; Pro-competitive effect; Gains from trade (search for similar items in EconPapers)
JEL-codes: D43 D61 F12 L13 (search for similar items in EconPapers)
Pages: 59
Date: 2024-10
New Economics Papers: this item is included in nep-int and nep-upt
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