The effect of international trade on markups distribution

This paper presents empirical evidence about the relationship between market openness and markup distribution of manufacturing firms. The empirical analysis uses a panel data set of Spanish firms in the period 1990-2005, with a structural approach to identify individual markups. The results point out that tougher competition associated to openness reduces marginal costs and prices, while it increases the average firm size. However, the evidence about the effect on average markups and the dispersion of performance variables across industries is weaker. These results partially support the theoretical predictions by the recent literature on efficiency heterogeneity and international trade and, in particular, Melitz and Ottaviano (2008).