The Elusive Pro-Competitive Effects of Trade
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.
We thank numerous colleagues, discussants, and seminar participants for helpful comments. Federico Esposito, Cory Smith, and Anthony Tokman provided superb research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Arkolakis gratefully acknowledges the support of the NSF through the CAREER grant and under the title: Welfare Gains from Economic Integration: A Unified Approach.
Costas Arkolakis, Arnaud Costinot, Dave Donaldson, Andrés Rodríguez-Clare; The Elusive Pro-Competitive Effects of Trade, The Review of Economic Studies, , rdx075, https://doi.org/10.1093/restud/rdx075 citation courtesy of