Markup Heterogeneity, Openness, And The Pro-Competitive Gains From Trade Across Countries

Hamid Firooz, Gunnar Heins and Sankalp Mathur
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Hamid Firooz: University of Rochester

Working Papers from Centre for Advanced Financial Research and Learning (CAFRAL)

Abstract: How does trade affect global competition and how do pro-competitive gains from trade vary across countries? To answer these questions, we develop a multi-country, multi-sector model of international trade with endogenously determined markups in the presence of (i) sector- and country-specific demand elasticities, (ii) responsiveness of import and export markups to the extent of competition, and (iii) rich variation in market shares, productivity distributions, and trade costs. We quantify the relative importance of each of these factors and document significant cross-country variation in the pro-competitive gains that inversely depend on countries' import shares and the responsiveness of markups to market shares on imports versus exports. Our results suggest that only large countries experience sizable pro-competitive gains from trade and only in the presence of a meaningful degree of variation in demand elasticities. Lastly, we find that the pro-competitive gains from trade are highly sensitive to sectoral variation in tariffs.

Keywords: Imperfect competition; variable markups; production relocation; trade war; gains from trade (search for similar items in EconPapers)
JEL-codes: F12 F14 (search for similar items in EconPapers)
Pages: 70
Date: 2024-08
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Persistent link: https://EconPapers.repec.org/RePEc:ris:cafral:022273

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