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.
Original language | English (US) |
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Pages (from-to) | 3183-3221 |
Number of pages | 39 |
Journal | American Economic Review |
Volume | 105 |
Issue number | 10 |
DOIs | |
State | Published - Oct 1 2015 |
ASJC Scopus subject areas
- Economics and Econometrics