TY  - JOUR
AU  - Feenstra,Robert C.
AU  - Weinstein,David E.
TI  - Globalization, Markups, and the U.S. Price Level
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15749
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15749
L1  - http://www.nber.org/papers/w15749.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

David Weinstein
Columbia University, Department of Economics
420 W. 118th Street
MC 3308
New York, NY  10027
Tel: 212/854-6880
Fax: 212/854-8059
E-Mail: dew35@columbia.edu
AB  - This paper is the first attempt to structurally estimate the impact of globalization on markups and welfare in a monopolistic competition model. To achieve this, we work with a class of preferences that allow for endogenous markups and firm entry and exit that are especially convenient for empirical work – the translog preferences, with symmetry in substitution imposed across products. Between 1992 and 2005 we find the U.S. market experienced a series of changes that confirm the predictions of Melitz and Ottaviano (2008): import shares rose and U.S. firms exited, leading to a fall in markups, while product variety and welfare went up. We estimate the impacts of these effects on a national level, and find a cumulative drop of 5.4 percent in merchandise prices and of 1.0 percent in overall consumer prices between 1992 and 2005. Although the magnitude of the welfare gains in our translog setup is similar to that obtained by assuming CES preferences, the sources of these gains are quite different. Variety gains under translog are at least one-third smaller than in the CES case, but there is a substantial reduction in U.S. markups, resulting in a comparable welfare gain overall.
ER  -