Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market

dc.contributor.authorHeid, B.
dc.contributor.authorStähler, F.
dc.date.issued2024
dc.description.abstractThe structural gravity model is the workhorse model in international trade to estimate the drivers of trade costs. We propose a new gravity estimation procedure that allows us to disentangle exogenous trade costs and endogenous aggregate markups under oligopoly. Our method can be easily implemented in standard gravity data sets, and we illustrate it by analyzing the competition and welfare effects of the European Single Market. We find that abolishing the European Single Market would increase domestic aggregate markups in EU member countries by 2 to 6 percent. Welfare effects of trade liberalization are larger due to changes in competition among domestic and foreign firms. Our findings highlight that evaluations of trade policy changes and trade cost reductions should also consider their effects on competition.
dc.description.statementofresponsibilityBenedikt Heid, Frank Stähler
dc.identifier.citationEconomic Modelling, 2024; 131:106604-1-106604-14
dc.identifier.doi10.1016/j.econmod.2023.106604
dc.identifier.issn0264-9993
dc.identifier.issn1873-6122
dc.identifier.orcidHeid, B. [0000-0002-2313-8614]
dc.identifier.urihttps://hdl.handle.net/2440/140472
dc.language.isoen
dc.publisherElsevier BV
dc.relation.granthttp://purl.org/au-research/grants/arc/DP190103524
dc.rights© 2023 Published by Elsevier B.V.
dc.source.urihttp://dx.doi.org/10.1016/j.econmod.2023.106604
dc.subjectTrade; Gravity; Imperfect competition; Market power; Oligopoly; European Single Market; European Union
dc.titleStructural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market
dc.typeJournal article
pubs.publication-statusPublished

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