The Elusive Pro-Competitive Effects of Trade

Arkolakis, Costas; Donaldson, Dave; Costinot, Arnaud; Rodr�guez-Clare, Andr�s

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 et al. (2012). We then use both estimates from micro-level trade data and evidence regarding firm-level pass through to quantify the implications of this new formula.Within the class of models that we consider, our main finding is that gains from trade liberalization predicted by models with variable markups are equal to, at best, and slightly lower than, at worst, those predicted by models with constant markups. In this sense, pro-competitive effects of trade are elusive.

Citation

Arkolakis, C., Donaldson, D., Costinot, A., & Rodríguez-Clare, A. (2019). The Elusive Pro-Competitive Effects of Trade. Review of Economic Studies, 86(1), 46-80. https://doi.org/10.1093/restud/rdx075

• Journal Article Type: Article
• Acceptance Date: Jan 1, 2018
• Online Publication Date: Jan 10, 2018
• Publication Date: 2019-01
• Deposit Date: Oct 24, 2019
• Publicly Available Date: Oct 24, 2019
• Journal: The Review of Economic Studies
• Print ISSN: 0034-6527
• Electronic ISSN: 1467-937X
• Publisher: Oxford University Press
• Peer Reviewed: Peer Reviewed
• Volume: 86
• Issue: 1
• Pages: 46-80
• DOI: https://doi.org/10.1093/restud/rdx075
• Keywords: International trade, Monopolistic competition, Variable markups, Pro-competitive effect, Gravity models
• Public URL: https://nottingham-repository.worktribe.com/output/2954216
• Publisher URL: https://academic.oup.com/restud/article/86/1/46/4797189