Competition, Markups, and the Gains from International Trade

Chris Edmond, Virgiliu Midrigan and Yi Xu ()

No 18041, NBER Working Papers from National Bureau of Economic Research, Inc

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 inefficiencies associated with markups, and (ii) a weak pattern of cross-country comparative advantage in individual sectors. We find 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.

JEL-codes: E23 F1 O4 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-int and nep-mac
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Citations: View citations in EconPapers (41)

Published as Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2015. "Competition, Markups, and the Gains from International Trade," American Economic Review, American Economic Association, vol. 105(10), pages 3183-3221, October.

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Related works:
Journal Article: Competition, Markups, and the Gains from International Trade (2015)
Working Paper: Competition, Markups, and the Gains from International Trade (2013)
Working Paper: Competition, Markups, and the Gains from International Trade (2013)
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