The Elusive Pro-Competitive Effects of Trade

49 Pages Posted: 20 Jul 2015 Last revised: 23 May 2022

See all articles by Costas Arkolakis

Costas Arkolakis

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Dave Donaldson

Massachusetts Institute of Technology (MIT); Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 2015

Abstract

We study the gains from trade liberalization in models with monopolistic competition, firm-level heterogeneity, and variable markups. For a large class of demand functions used in the international macro and trade literature, we derive a parsimonious generalization of the welfare formula in Arkolakis, Costinot, and Rodríguez-Clare (2012). We then use micro-level trade data to quantify the implications of this new formula. Our main finding is that gains from trade liberalization predicted by models with variable markups are slightly lower than those predicted by models with constant markups. In this sense, pro-competitive effects of trade are elusive.

Suggested Citation

Arkolakis, Costas and Costinot, Arnaud and Costinot, Arnaud and Donaldson, Dave and Donaldson, Dave and Rodríguez-Clare, Andrés, The Elusive Pro-Competitive Effects of Trade (July 2015). NBER Working Paper No. w21370, Available at SSRN: https://ssrn.com/abstract=2633326

Costas Arkolakis (Contact Author)

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Yale University - Cowles Foundation

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Arnaud Costinot

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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University of California, San Diego (UCSD) - Department of Economics ( email )

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Dave Donaldson

Stanford University - Department of Economics ( email )

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Massachusetts Institute of Technology (MIT) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
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Andrés Rodríguez-Clare

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94709
United States

National Bureau of Economic Research (NBER)

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