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Technology, market structure and the gains from trade

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  • Impullitti, Giammario
  • Licandro, Omar
  • Rendahl, Pontus

Abstract

We study the gains from trade in a model with oligopolistic competition, heterogeneous firms and innovation. Our key finding is that a trade-induced increase in market concentration can be an important source of the gains from trade. Foreign competition puts downward pressure on profitability which reduces the equilibrium number of firms, but increases their size. This rise in concentration increases welfare via two channels: increasing returns in production, and a scale effect on innovation. In a calibrated version of the model we show that concentration is a main driver of the gains from trade, mostly via its stimulating effect on innovation – the contribution of increasing returns is small. Moreover, lowering trade costs reduce the inefficiency produced by “reciprocal dumping”, leading to substantial gains. In contrast, the associated reduction in markup dispersion has only a negligible effect.

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  • Impullitti, Giammario & Licandro, Omar & Rendahl, Pontus, 2022. "Technology, market structure and the gains from trade," Journal of International Economics, Elsevier, vol. 135(C).
  • Handle: RePEc:eee:inecon:v:135:y:2022:i:c:s0022199621001379
    DOI: 10.1016/j.jinteco.2021.103557
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    Cited by:

    1. Impullitti, Giammario & Licandro, Omar & Rendahl, Pontus, 2022. "Technology, market structure and the gains from trade," Journal of International Economics, Elsevier, vol. 135(C).
    2. Matias Covarrubias & Germán Gutiérrez & Thomas Philippon, 2019. "From Good to Bad Concentration? US Industries over the Past 30 Years," NBER Chapters, in: NBER Macroeconomics Annual 2019, volume 34, pages 1-46, National Bureau of Economic Research, Inc.
    3. Impullitti, Giammario & Licandro, Omar & Rendahl, Pontus, 2022. "Technology, market structure and the gains from trade," Journal of International Economics, Elsevier, vol. 135(C).
    4. Tchoffo, Rodrigue & Ngouhouo, Ibrahim & Nkemgha, Guivis, 2020. "Trade Liberalization and Macroeconomic Performance in Cameroon: An Imperfect Competition Approach," MPRA Paper 98558, University Library of Munich, Germany, revised 09 Feb 2020.
    5. Gutiérrez, Germán & Jones, Callum & Philippon, Thomas, 2021. "Entry costs and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 77-91.
    6. Impullitti, Giammario & Licandro, Omar & Rendahl, Pontus, 2022. "Technology, market structure and the gains from trade," Journal of International Economics, Elsevier, vol. 135(C).
    7. Giammario Impullitti & Richard Kneller & Danny McGowan, 2020. "Demand‐Driven Technical Change and Productivity Growth: Theory and Evidence FROM the Energy Policy Act," Journal of Industrial Economics, Wiley Blackwell, vol. 68(2), pages 328-363, June.
    8. Germán Gutiérrez & Callum Jones & Thomas Philippon, 2019. "Entry Costs and the Macroeconomy," NBER Working Papers 25609, National Bureau of Economic Research, Inc.
    9. Impullitti, Giammario, 2022. "Credit constraints, selection and productivity growth," Economic Modelling, Elsevier, vol. 111(C).
    10. Laurent Cavenaile & Pau Roldan-Blanco & Tom Schmitz, 2020. "International Trade and Innovation Dynamics with Endogenous Markups," Working Papers 671, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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    More about this item

    Keywords

    Gains from trade; Oligopoly; Endogenous markups; Market concentration; Innovation; Heterogeneous firms;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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