Trade Policies, Firm Heterogeneity, and Variable Markups
We study unilateral trade liberalization in the model with variable markups. First, we show that the e¤ect of falling per unit trade costs depends on the use of the outside good assumption: in its presence trade liberalization reduces welfare at home, and raises it otherwise. Second, we derive the optimal values of import tari¤s for the large and small economies and show that in both cases protection is a desirable policy. Finally, we demonstrate that compared to the models with constant markups, variable markups in our setting result in negative pro-competitive effects, reducing gains from trade.
Year of publication: |
2015-05
|
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Authors: | Demidova, Svetlana |
Institutions: | Department of Economics, McMaster University |
Saved in:
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