Competition, Markups, and the Gains from International Trade

49 Pages Posted: 4 May 2012 Last revised: 27 Oct 2014

See all articles by Chris Edmond

Chris Edmond

University of Melbourne - Department of Economics

Chris Edmond

University of Melbourne - Department of Economics

Virgiliu Midrigin

New York University (NYU) - Department of Economics

Daniel Yi Xu

Duke University

Date Written: May 2012

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

Suggested Citation

Edmond, Chris and Edmond, Chris and Midrigin, Virgiliu and Yi Xu, Daniel, Competition, Markups, and the Gains from International Trade (May 2012). NBER Working Paper No. w18041. Available at SSRN: https://ssrn.com/abstract=2050831

Chris Edmond (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

Chris Edmond

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

Virgiliu Midrigin

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Daniel Yi Xu

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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