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The dynamics of trade and competition
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Chen, Natalie, Imbs, Jean and Scott, Andrew (2009) The dynamics of trade and competition. Journal of International Economics, Vol.77 (No.1). pp. 50-62. doi:10.1016/j.jinteco.2008.10.003
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Official URL: http://dx.doi.org/10.1016/j.jinteco.2008.10.003
Abstract
We estimate a version of the Melitz and Ottaviano [Melitz, Marc J. and Ottaviano, Giannnarco I.P., 2008, Market size, trade, and productivity, Review of Economic Studies 75(l), pp. 295-316.] model of international trade with firm heterogeneity. The model is constructed to yield testable implications for the dynamics of prices, productivity and markups as functions of openness to trade at a sectoral level. The theory lends itself naturally to a difference in differences estimation, with international differences in trade openness at the sector level reflecting international differences in the competitive structure of markets. Predictions are derived for the effects of both domestic and foreign openness on each economy. Using disaggregated data for EU manufacturing over the period 1989-1999 we find short run evidence that trade openness exerts a competitive effect, with prices and markups falling and productivity rising. The response of profit margins to openness has implications on the conduct of monetary policy. Consistent with the predictions of some recent theoretical models we find some, albeit weaker, support that the long run effects are more ambiguous and may even be anti-competitive. Domestic trade liberalization also appears to induce pro-competitive effects on overseas markets. (c) 2008 Elsevier B.V. All rights reserved.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HC Economic History and Conditions | ||||
| Divisions: | Faculty of Social Sciences > Economics | ||||
| Journal or Publication Title: | Journal of International Economics | ||||
| Publisher: | Elsevier BV | ||||
| ISSN: | 0022-1996 | ||||
| Official Date: | February 2009 | ||||
| Dates: |
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| Volume: | Vol.77 | ||||
| Number: | No.1 | ||||
| Number of Pages: | 13 | ||||
| Page Range: | pp. 50-62 | ||||
| DOI: | 10.1016/j.jinteco.2008.10.003 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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