Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market
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INVESTIGACIONMetadata
Title
Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single MarketDate
2023-11-25Publisher
ElsevierBibliographic citation
HEID, Benedikt; STÄHLER, Frank. Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market. Economic Modelling, 2024, vol. 131, p. 106604.Type
info:eu-repo/semantics/articleVersion
info:eu-repo/semantics/acceptedVersionSubject
Abstract
The 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 ... [+]
The 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. [-]
Funder Name
Australian Research Council | Ministerio de Ciencia, Innovación y Universidades (Spain) | European Union - NextGenerationEU “NextGenerationEU” | MCIN/AEI/10.13039/501100011033 | Generalitat Valenciana | Universitat Jaume I
Project code
DP190103524 | MAZ/2021/04 (UP2021-021) | PID2020-114646RB-C42 | CIRPOM/2022/50 | UJI-B2022-36-(22I587)
Rights
© 2023 Published by Elsevier B.V.
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