American Economic Review Vol. 105 No. 10 2015

Competition, Markups, and the Gains from International Trade

Chris Edmond¹; Virgiliu Midrigan²; Daniel Yi Xu³

¹ Department of Economics, University of Melbourne, 111 Barry Street, Carlton, VIC 3010, Australia (e-mail: ) · ² Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012, and NBER (e-mail: ) · ³ Department of Economics, Duke University, 419 Chapel Drive, Box 90097, Durham, NC 27708, and NBER (e-mail: )

Abstract

We study the procompetitive gains from international trade in a quantitative model with endogenously variable markups. We find that trade can significantly reduce markup distortions if two conditions are satisfied: (i) there is extensive misallocation, and (ii) opening to trade exposes hitherto dominant producers to greater competitive pressure. We measure the extent to which these two conditions are satisfied in Taiwanese producer-level data. Versions of our model consistent with the Taiwanese data predict that opening up to trade strongly increases competition and reduces markup distortions by up to one-half, thus significantly reducing productivity losses due to misallocation.

DOI

10.1257/aer.20120549

Volume

105

Issue

10

Pages

3183-3221

Language

en

Sources

crossref openalex bibtex:phds-export.bib

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓