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Competition, Markups, and the Gains from

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  • Chris Edmond, Virgiliu Midrigan, Daniel Yi Xu,

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 ineciencies associated with markups, and (ii)a weak pattern of cross-country comparative advantage in individual sectors. We and 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.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1145.

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Length: 22 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:mlb:wpaper:1145

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Keywords: productivity; misallocation; comparative advantage; intra-industry trade.;

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References

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  1. De Loecker, Jan & Warzynski, Frederic, 2009. "Markups and Firm-level Export Status," CEPR Discussion Papers 7450, C.E.P.R. Discussion Papers.
  2. Grubel, Herbert G & Lloyd, P J, 1971. "The Empirical Measurement of Intra- Industry Trade," The Economic Record, The Economic Society of Australia, vol. 47(120), pages 494-517, December.
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Cited by:
  1. Costinot, Arnaud & Rodriguez-Clare, Andres, 2013. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," CEPR Discussion Papers 9398, C.E.P.R. Discussion Papers.
  2. James A. Schmitz, Jr., 2012. "New and larger costs of monopoly and tariffs," Staff Report 468, Federal Reserve Bank of Minneapolis.
  3. Jung, Benjamin & Felbermayr, Gabriel & Larch, Mario, 2013. "Icebergs versus Tariffs: A Quantitative Perspective on the Gains from Trade," Munich Reprints in Economics 19542, University of Munich, Department of Economics.
  4. Benjamin R. Mandel, 2013. "Chinese exports and U.S. import prices," Staff Reports 591, Federal Reserve Bank of New York.

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