Paper #1037

Título:

Trade, markup heterogeneity and misallocations

Autores:

Paolo Epifani y Gino Gancia

Fecha:

Junio 2007

Resumen:

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.

Palabras clave:

Markups, Dispersion of Market Power, Procompetitive Effect, Trade and Welfare

Códigos JEL:

F12, F15

Área de investigación:

Macroeconomía y Economía Internacional

Publicado en:

Journal of International Economics, 83, 1-13, 2011

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