Measuring the Gains from Trade under Monopolistic Competition

Robert Feenstra

No 15593, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Three sources of gains from trade under monopolistic competition are: (i) new import varieties available to consumers; (ii) enhanced efficiency as more productive firms begin exporting and less productive firms exit; (iii) reduced markups charged by firms due to import competition. The first source of gains can be measured as new goods in a CES utility function for consumers. We argue that the second source is formally analogous to the producer gain from new goods, with a constant-elasticity transformation curve for the economy. We suggest that the third source of gain can be measured using a translog expenditure function for consumers, which in contrast to the CES case, allows for finite reservation prices for new goods and endogenous markups.

JEL-codes: F12 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-int and nep-reg
Note: ITI
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Citations: View citations in EconPapers (9)

Published as Robert C. Feenstra, 2010. "Measuring the gains from trade under monopolistic competition," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(1), pages 1-28, February.

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