Citation

Discussion Paper Details

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Title: Trade and Domestic Policies under Monopolistic Competition

Author(s): Alessia Campolmi, Harald Fadinger and Chiara Forlati

Publication Date: October 2018

Keyword(s): Domestic Policy, efficiency, Heterogeneous Firms, Tariffs and Subsidies, terms of trade, Trade agreements and trade policy

Programme Area(s): International Trade and Regional Economics

Abstract: Should trade agreements also constrain domestic policies? We analyze this question from the perspective of heterogeneous-firm models with monopolistic-competition and multiple sectors. We propose a welfare decomposition based on principles from welfare economics to show that, in a very broad class of models, welfare changes induced by trade and domestic policies can be exactly decomposed into consumption-efficiency, production-efficiency and terms-of-trade effects. Using this decomposition, we compare trade agreements with different degrees of cooperation on domestic policies and show how their performance is affected by the interaction between firm heterogeneity and the relative importance of production efficiency versus terms-of-trade effects.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13219

Bibliographic Reference

Campolmi, A, Fadinger, H and Forlati, C. 2018. 'Trade and Domestic Policies under Monopolistic Competition'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13219