NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Wen-Tai Hsu

School of Economics
Singapore Management University
90 Stamford Road
Singapore 178903

E-Mail: wentaihsu@smu.edu.sg

NBER Working Papers and Publications

August 2013Allocative Efficiency, Mark-ups, and the Welfare Gains from Trade
with Thomas J. Holmes, Sanghoon Lee: w19273
This paper develops an index of allocative efficiency that depends upon the distribution of mark-ups across goods. It determines how changes in trade frictions affect allocative efficiency in an oligopoly model of international trade, decomposing the effect into the cost-change channel and the price-change channel. Formulas are derived shedding light on the signs and magnitudes of the two channels. In symmetric country models, trade tends to increase allocative efficiency through the cost-change channel, yielding a welfare benefit beyond productive efficiency gains. In contrast, the price-change channel has ambiguous effects on allocative efficiency.

Published: Holmes, Thomas J. & Hsu, Wen-Tai & Lee, Sanghoon, 2014. "Allocative efficiency, mark-ups, and the welfare gains from trade," Journal of International Economics, Elsevier, vol. 94(2), pages 195-206. citation courtesy of

 
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