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Globalization, Markups, and US Welfare

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  • Robert C. Feenstra
  • David E. Weinstein

Abstract

This paper estimates the impact of globalization on markups, and the effect of changing markups on US welfare, in a monopolistic competition model. We work with symmetric translog preferences, which allow for endogenous markups and firm entry and exit, thereby changing product variety. We find that between 1992 and 2005, US import shares rose and US firms exited, leading to an implied fall in markups, while variety went up because of imports. US welfare rose by nearly 1 percent as a result of these changes, with product variety contributing one-half of that total and declining markups the other half.

Suggested Citation

  • Robert C. Feenstra & David E. Weinstein, 2017. "Globalization, Markups, and US Welfare," Journal of Political Economy, University of Chicago Press, vol. 125(4), pages 1040-1074.
  • Handle: RePEc:ucp:jpolec:doi:10.1086/692695
    DOI: 10.1086/692695
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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