Market Concentration, Variable Markups and the Welfare Gains from Trade [new draft soon!]
In recent decades, large firms have become increasingly dominant in domestic markets across countries. How does rising market concentration affect the gains from trade and the incentives to maintain low trade barriers? How does it interact with the role of foreign competition in disciplining domestic markups? In this paper, I study how observed market structure and trade openness shape the welfare gains from trade through a sufficient-statistic approach. I develop a general equilibrium model in which granular firms from different origins compete in domestic markets by supplying imperfectly substitutable products. Under both quantity and price competition, I show that there exists a welfare-consistent concentration statistic that captures the direct welfare costs of variable markups arising from firm granularity. This result yields a sufficient statistic for the gains from trade that depends only on domestic firms’ market shares and the elasticity of substitution. I apply this framework to study Chile’s trade liberalization at the turn of the century amid a secular rise in concentration. Despite increasing domestic concentration, the welfare costs associated with markups declined as trade openness increased, reflecting the disciplining effect of foreign competition on domestic firms.
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.