Trade, markup heterogeneity and misallocations

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We argue that the procompetitive effect of international trade may bring about significant welfare costs that have not been recognized. We formulate a stylized general equilibrium model with a continuum of imperfectly competitive industries to show that, under plausible conditions, a trade-induced increase in competition can actually amplify monopoly distortions. This happens because trade, while lowering the average level of market power, may increase its cross-sectoral dispersion. Using data on US industries, we document a dramatic increase in the dispersion of market power overtime. We also show evidence that trade might be responsible for it and provide some quantifications of the induced welfare cost. Our results suggest that, to avoid some unpleasant effects of globalization, trade integration should be accompanied by procompetitive reforms (i.e., deregulation) in the nontraded sectors.

Keywords: Markups; Dispersion of Market Power; Procompetitive Effect; Trade and Welfare (search for similar items in EconPapers)
JEL-codes: F12 F15 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-com and nep-int
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Trade, markup heterogeneity and misallocations (2011)
Working Paper: Trade, markup heterogeneity and misallocations (2010)
Working Paper: Trade, Markup Heterogeneity and Misallocations (2009)
Working Paper: Trade, Markup Heterogeneity and Misallocations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1037

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