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The Elusive Pro-Competitive Effects of Trade

Author:
Costas Arkolakis   Arnaud Costinot   Dave Donaldson  


Issue Date:
2012


Abstract(summary):

We study the pro-competitive effects of international trade, or lack thereof, in models with monopolistic competition, ?rm-level heterogeneity, and variable markups. Under standard restrictions on consumers’ demand and the distribution of ?rms’ productivity, we show that gains from trade liberalization are weakly lower than those predicted by the models with constant markups considered in Arkolakis, Costinot, and Rodríguez-Clare (2012). Our preferred estimates suggest that the decrease in the gains from trade liberalization due to variable markups is between 6 and 11%.


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