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International Trade with Indirect Additivity†

International Trade with Indirect Additivity† AbstractWe develop a general equilibrium model of trade that features “indirectly additive” preferences and heterogeneous firms. Monopolistic competition generates markups that are increasing in firm productivity and in destination country per capita income, but independent from destination population, as documented empirically. The gains from trade liberalization are lower than in models based on CES preferences, and the difference is governed by the average pass-through. When we calibrate the model so as to match observed pricing-to-market in micro-data, it generates welfare gains that are substantially lower than those predicted by commonly employed frameworks. (JEL D11, D43, F12, L11) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

International Trade with Indirect Additivity†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20160382
Publisher site
See Article on Publisher Site

Abstract

AbstractWe develop a general equilibrium model of trade that features “indirectly additive” preferences and heterogeneous firms. Monopolistic competition generates markups that are increasing in firm productivity and in destination country per capita income, but independent from destination population, as documented empirically. The gains from trade liberalization are lower than in models based on CES preferences, and the difference is governed by the average pass-through. When we calibrate the model so as to match observed pricing-to-market in micro-data, it generates welfare gains that are substantially lower than those predicted by commonly employed frameworks. (JEL D11, D43, F12, L11)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2018

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