TY  - JOUR
AU  - Feenstra,Robert C.
TI  - Measuring the Gains from Trade under Monopolistic Competition
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15593
PY  - 2009
Y2  - December 2009
UR  - http://www.nber.org/papers/w15593
L1  - http://www.nber.org/papers/w15593.pdf
N1  - Author contact info:
Robert C. Feenstra
Department of Economics
University of California, Davis
One Shields Avenue
Davis, CA  95616
Tel: 530/752-7022
Fax: 530/752-9382
E-Mail: rcfeenstra@ucdavis.edu
AB  - Three sources of gains from trade under monopolistic competition are: (i) new import varieties available to consumers; (ii) enhanced efficiency as more productive firms begin exporting and less productive firms exit; (iii) reduced markups charged by firms due to import competition. The first source of gains can be measured as new goods in a CES utility function for consumers. We argue that the second source is formally analogous to the producer gain from new goods, with a constant-elasticity transformation curve for the economy. We suggest that the third source of gain can be measured using a translog expenditure function for consumers, which in contrast to the CES case, allows for finite reservation prices for new goods and endogenous markups.
ER  -