Growing evidence shows that large firms have become more dominant in domestic markets across different countries. How does this increase in market concentration affect the welfare gains from trade and, thus, the incentives to maintain lower barriers? How does it interact with the role of foreign competition in disciplining domestic firms’ markups? In this paper, I study how observed market structures and trade openness shape the welfare gains from trade using a sufficient statistic approach. I construct a general equilibrium model in which granular firms from different origins compete in domestic markets by selling products that are imperfect substitutes. I show that under both quantity and price competition, there exists a welfare-consistent concentration measure that captures the direct consumer welfare cost from markups due to granularity. On the producer side, I uncover a domestic aggregate markup from sales at home and abroad that determines domestic producers’ aggregate profits. These results lead to two sufficient statistics measuring the consumer and producer gains from trade, together defining the total gains. I leverage these statistics to study the process of trade opening experienced by Chile at the turn of the century. I find that despite rising domestic concentration, the costs from markups declined as the economy opened, lowering the opportunity cost of reducing openness. These results highlight the importance of being equipped with statistics that consider the existing industry market structures when evaluating changes in trade exposure.
Trading Places: How Trade Policy Is Reshaping Multinational Firms’ Location
CESifo Working Paper No. 11514, 2024; with Monika Sztajerowska and Christian Volpe Martincus.
Recent changes in trade policy have significantly impacted trade flows. Have firms modified the spatial organization of their multinational production to circumvent these changes? In this paper, we provide new evidence on whether such a tariff-induced shift in the location patterns of multinational firms took place by exploiting changes in U.S. import tariffs in 2018-2019. The evidence indicates that firms have indeed responded to these new tariffs by adjusting the extensive margin of their multinational production across countries and that both structural factors and trade agreements played an important role in shaping these adjustments. We also show evidence of anticipatory effects in 2016-2017 by exploiting the positive correlation between the 2018-2019 U.S. tariffs and the Column 2-MFN tariff margin pre-China's accession to the WTO.
CESifo Working Paper No. 11322, 2024; with Yuan Tian.
Economy-wide shocks affect demand, supply, and intermediary sectors simultaneously. We dissect the impact of the Covid-19 pandemic on international trade by combining information from customs records, smartphone-based human mobility, and container ship port calls. We find that local disruptions to domestic demand reduced import quantities, while local disruptions to foreign supply and at seaports increased import prices and reduced quantities. On net, local disruptions during the pandemic were a negative supply shock, and the residual structural factors were a positive demand shock. The resulting excess import demand contributed to the rise in domestic inflation.
The Border Labyrinth: Information Technologies and Trade in the Presence of Multiple Agencies [revision in progress, new draft soon!]
IDB Working Paper Series No. IDB-WP-706, 2016, with Jeronimo Carballo, Georg Schaur and Christian Volpe Martincus
Firms selling products abroad usually have to interact with several border agencies that develop multiple trade regulations and oversee their compliance. These regulations establish the procedures that these firms have to follow and the documents that they have to obtain, fill in, and submit for their exports to be authorized. In this paper, we estimate the effects of introducing information technologies as a new means to complete such trade-related procedures. In particular, we use highly disaggregated firm-level export data from Costa Rica over the period 2007-2013 and exploit the gradual phase-in of an electronic trade single window scheme across groups of products and ports. Results suggest that this new system has been associated with both an expansion in the number of exporting firms and increased firms' exports along the shipment extensive margin and the buyer extensive and intensive margins.