NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Elusive Pro-Competitive Effects of Trade

Costas Arkolakis, Arnaud Costinot, Dave Donaldson, Andrés Rodríguez-Clare

NBER Working Paper No. 21370
Issued in July 2015
NBER Program(s):International Trade and Investment

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.

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Document Object Identifier (DOI): 10.3386/w21370

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