Globalization, Markups, and US Welfare

This paper estimates the impact of globalization on markups, and the effect of changing markups on US welfare, in a monopolistic competition model. We work with symmetric translog preferences, which allow for endogenous markups and firm entry and exit, thereby changing product variety. We find that...

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Bibliographic Details
Published in:The Journal of political economy 2017-08, Vol.125 (4), p.1040-1074
Main Authors: Feenstra, Robert C., Weinstein, David E.
Format: Article
Language:English
Subjects:
Economic theory
Endogenous
Globalization
Imports
Markups
Monopolistic competition
Political economy
Studies
US imports
Welfare
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Summary:This paper estimates the impact of globalization on markups, and the effect of changing markups on US welfare, in a monopolistic competition model. We work with symmetric translog preferences, which allow for endogenous markups and firm entry and exit, thereby changing product variety. We find that between 1992 and 2005, US import shares rose and US firms exited, leading to an implied fall in markups, while variety went up because of imports. US welfare rose by nearly 1 percent as a result of these changes, with product variety contributing onehalf of that total and declining markups the other half.
ISSN:0022-3808
1537-534X
DOI:10.1086/692695