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Markup Heterogeneity, Openness, And The Pro-Competitive Gains From Trade Across Countries

Author

Listed:
  • Hamid Firooz

    (University of Rochester)

  • Gunnar Heins

    (University of Florida)

  • Sankalp Mathur

    (entre for Advanced Financial Research and Learning (CAFRAL))

Abstract

How does trade affect global competition and how do pro-competitive gains from trade vary across countries? To answer these questions, we develop a multi-country, multi-sector model of international trade with endogenously determined markups in the presence of (i) sector- and country-specific demand elasticities, (ii) responsiveness of import and export markups to the extent of competition, and (iii) rich variation in market shares, productivity distributions, and trade costs. We quantify the relative importance of each of these factors and document significant cross-country variation in the pro-competitive gains that inversely depend on countries' import shares and the responsiveness of markups to market shares on imports versus exports. Our results suggest that only large countries experience sizable pro-competitive gains from trade and only in the presence of a meaningful degree of variation in demand elasticities. Lastly, we find that the pro-competitive gains from trade are highly sensitive to sectoral variation in tariffs.

Suggested Citation

  • Hamid Firooz & Gunnar Heins & Sankalp Mathur, 2024. "Markup Heterogeneity, Openness, And The Pro-Competitive Gains From Trade Across Countries," Working Papers 022273, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022273
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    File URL: https://www.cafral.org.in/sfControl/content/Speech/1092024113505AMMarkupHeterogeneityOpenness_SM_Aug2024.pdf
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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