Publication Type
Journal Article
Version
acceptedVersion
Publication Date
1-2020
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 pro-competitive 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 et al., 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.
Keywords
Gains from trade, Markups, Pro-competitive effects, ACR formula, Head-to-head competition, Chinese economy
Discipline
Asian Studies | International Economics
Research Areas
Applied Microeconomics
Publication
Journal of International Economics
Volume
122
First Page
1
Last Page
26
ISSN
0022-1996
Identifier
10.1016/j.jinteco.2019.103266
Publisher
Elsevier
Citation
HSU, Wen-Tai; LU, Yi; and WU, Guiying Laura.
Competition, markups, and gains from trade: A quantitative analysis of China between 1995 and 2004. (2020). Journal of International Economics. 122, 1-26.
Available at: https://ink.library.smu.edu.sg/soe_research/2316
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jinteco.2019.103266