Competition, markups, and the gains from international trade

Chris Edmond, Virgiliu Midrigan, Daniel Yi Xu

    Research output: Contribution to journalArticlepeer-review

    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 languageEnglish (US)
    Pages (from-to)3183-3221
    Number of pages39
    JournalAmerican Economic Review
    Volume105
    Issue number10
    DOIs
    StatePublished - Oct 1 2015

    ASJC Scopus subject areas

    • Economics and Econometrics

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