Work

What Are the Price Effects of Trade? Evidence From the U.S. and Implications for Quantitative Trade Models

Year: 2018

Type: article

Abstract: This paper finds that U.S. consumer prices fell substantially due to increased trade with China. With comprehensive price micro-data and two complementary identification strategies, we estimate that a 1pp increase in import penetration from China causes a 1.91% decline in consumer prices. This price response is driven by declining markups for domestically-produced goods, and is one order of magnitude larger than in standard trade models that abstract from strategic price-setting. The estimates imply that trade with China increased U.S. consumer surplus by about $400,000 per displaced job, and that product categories catering to low-income consumers experienced larger price declines.

Source: Finance and Economics Discussion Series

DOI: 10.17016/feds.2019.068

Authors: Xavier Jaravel, Erick Sager

Institutions: London School of Economics and Political Science, Federal Reserve, Federal Reserve Board of Governors

Language: English

Topic: Global trade and economics

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: diamond

Funders: London School of Economics and Political Science, Economic and Social Research Council