Publication Type

Working Paper

Version

publishedVersion

Publication Date

1-2019

Abstract

This paper provides a quantitative analysis of gains from trade in a model with head-to-head competition using Chinese firm-level data from Economic Censuses in 1995 and 2004. We find a significant reduction in trade cost during this period, and total gains from such improved openness during this period is 7:1%. The gains are decomposed into a Ricardian component and two pro-competitive ones. The procompetitive effects account for 20% of the total gains. Moreover, the total gains from trade are 13 31% larger than what would result from the formula provided by ACR (Arkolakis, Costinot, and Rodríguez-Clare 2012), which nests a class of important trade models, but without pro-competitive effects. We find that head-to-head competition is the key reason behind the larger gains, as trade flows do not reflect all of the effects via markups in an event of trade liberalization. One methodological advantage of this paper’s quantitative framework is that its application is not constrained by industrial or product classifications; thus it can be applied to countries of any size.

Keywords

Gains from trade, Markups, Pro-competitive effects, ACR formula, Head-to-head competition, Chinese economy

Discipline

Asian Studies | Industrial Organization | International Economics

Research Areas

Applied Microeconomics

First Page

1

Last Page

73

Publisher

SMU Economics and Statistics Working Paper Series, No. 02-2019

City or Country

Singapore

Copyright Owner and License

Authors

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