Globalization, Markups and U.S. Welfare

Robert Feenstra and David Weinstein

No 15749, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper is the first attempt to structurally estimate the impact of globalization on markups, and the effect of changing markups on welfare, in a monopolistic competition model. To achieve this, we work with a class of preferences that allow for endogenous markups and firm entry and exit that are especially convenient for empirical work - the translog preferences, with symmetry in substitution imposed across products. Between 1992 and 2005 we find the U.S. market experienced a series of changes that confirm a pro-competitive effect: import shares rose and U.S. firms exited, leading to an implied fall in markups, while product variety and welfare went up. We estimate the impacts of these effects on a national level, and find that U.S. welfare rose by as much as 0.86 percent between 1992 and 2005 as a result of these changes, with product variety contributing one-half of that total.

JEL-codes: E31 F12 F4 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-bec, nep-com, nep-mac and nep-opm
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Published as Robert C. Feenstra & David E. Weinstein, 2017. "Globalization, Markups, and US Welfare," Journal of Political Economy, University of Chicago Press, vol. 125(4), pages 1040-1074.

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