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The revealed cost competitiveness of changing trade patterns: A country-sector exercise

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  • Massimo Del Gatto

Abstract

In new trade models with heterogenous firms, trade liberalization between high-cost and low-cost countries is expected, all the rest equal, to increase cost competitiveness (i.e., to decrease real marginal costs) relatively more in the former. We report evidence in favour of this prediction for a sample of countries, accounting for about 85% of world trade, from the 1980s to the 2000s. The estimation of the country-sector changes in cost competitiveness (relative to the UK) hinges on taking advantage of the observability of international trade patterns to reveal information on cross-country differences in marginal costs, hence ‘revealed’ cost competitiveness.

Suggested Citation

  • Massimo Del Gatto, 2018. "The revealed cost competitiveness of changing trade patterns: A country-sector exercise," International Economics, CEPII research center, issue 154, pages 3-22.
    • Handle: RePEc:cii:cepiie:2018-q2-154-2
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    Keywords

    Firm selection; Gravity equation; Import competition;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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