Competition, Markups, and the Gains from

Chris Edmond

No 1145, Department of Economics - Working Papers Series from The University of Melbourne

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 ineciencies associated with markups, and (ii)a weak pattern of cross-country comparative advantage in individual sectors. We and 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: 22 pages
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Working Paper: Competition, Markups, and the Gains from (2014)
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