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Trading Away Wide Brands for Cheap Brands

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  • Swati Dhingra
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    Abstract

    Firms face competing needs to expand product variety and reduce production costs. Trade policy affects firm investments in product variety and production processes differently. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms react by narrowing their product varieties to recapture these lost markups. I provide a theory detailing this conflicting impact of trade policy and address welfare gains from trade. Accounting for firm heterogeneity, I show support for the theoretical predictions with firm-level innovation data from Thailand's manufacturing sector which experienced unilateral home tariff changes during 2003-2006.

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    Bibliographic Info

    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1103.

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    Date of creation: Dec 2011
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    Handle: RePEc:cep:cepdps:dp1103

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    Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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    Keywords: brands; trade; manufacturing; heterogeneous firms; Thailand;

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    Cited by:
    1. Melitz, Marc J & Redding, Stephen J., 2013. "Heterogeneous Firms and Trade," CEPR Discussion Papers 9317, C.E.P.R. Discussion Papers.
    2. Mauro Caselli & Arpita Chatterjee & Alan Woodland, 2014. "Multi-product exporters, variable markups and exchange rate fluctuations," Discussion Papers 2014-15, School of Economics, The University of New South Wales.
    3. Nakhoda, Aadil, 2013. "The impact of the exports of BRIC countries plus Turkey on the exports of Pakistan," MPRA Paper 52477, University Library of Munich, Germany.

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