View article

I derive a novel solution for the long run, competitive effects of tariffs that is general for many countries, robust to rich cross-country heterogeneity, and a function of only aggregate trade data and country-by-industry Pareto shape parameters. To obtain shape estimates, I estimate a structural trade growth equation that is a function of shape parameters, trade flows and tariff cuts. The shape estimates indicate that larger and more developed exporters have, on average, bigger surviving firms, and when evaluated on a common import market, exporters with a better shape earn larger trade revenues. Using the shape estimates, I return to the model to back-out measures of relative competition across countries, where within-industries, smaller countries with a relatively poor shape of firms tend to have less competitive markets. However, I find that countries with less competitive markets experience a greater increase in competition over the sample period, suggesting that firms enter where competition is less fierce. Finally, counterfactuals indicate that tariff cuts over 1994-2000 increased competition in 85% of markets, and that the proposed Trans-Pacific Partnership would increase competition within the agreement, but decrease competition outside of it.