Globalization, Markups and U.S. Welfare
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NBER Working Paper No. 15749
Issued in February 2010, Revised in June 2014
NBER Program(s):International Trade and Investment
This paper is the first attempt to structurally estimate the impact of globalization on markups, and the effect of changing markups on welfare, in a monopolistic competition model. To achieve this, we work with a class of preferences that allow for endogenous markups and firm entry and exit that are especially convenient for empirical work - the translog preferences, with symmetry in substitution imposed across products. Between 1992 and 2005 we find the U.S. market experienced a series of changes that confirm a pro-competitive effect: import shares rose and U.S. firms exited, leading to an implied fall in markups, while product variety and welfare went up. We estimate the impacts of these effects on a national level, and find that U.S. welfare rose by as much as 0.86 percent between 1992 and 2005 as a result of these changes, with product variety contributing one-half of that total.
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Document Object Identifier (DOI): 10.3386/w15749
Published: Robert C. Feenstra & David E. Weinstein, 2017. "Globalization, Markups, and US Welfare," Journal of Political Economy, University of Chicago Press, vol. 125(4), pages 1040-1074. 