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Competition, Markups, and the Gains from International Trade

Author

Listed:
  • Edmond, Chris

    (Department of Economics, University of Melbourne, Australia)

  • Midrigan, Virgiliu

    (Federal Reserve Bank of Minneapolis, USA and NBER)

  • Xu, Daniel Yi

    (Department of Economics, Duke University, Durham, USA)

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.

Suggested Citation

  • Edmond, Chris & Midrigan, Virgiliu & Xu, Daniel Yi, 2013. "Competition, Markups, and the Gains from International Trade," Economics Series 299, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:299
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    File URL: https://irihs.ihs.ac.at/id/eprint/2211
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Productivity; misallocation; comparative advantage; intra-industry trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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    This paper has been announced in the following NEP Reports:

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