Endogenous markups, international trade, and the product mix

We investigate the effects of import penetration on the estimated price–cost margins of more than 28,000 firms operating in the Italian manufacturing sector. In the period considered (1998–2003), we find on average broad evidence of procompetitive gains from trade. However, when performing the same analysis at a more detailed industry level, we find substantial heterogeneity in the responses: in some industries the increased exposure to international trade is associated with higher, rather than lower, markups, while in others the relationship is not significant. In particular, the industries in which we find a positive impact of import penetration on markups exhibit, on average, a larger variation in the composition of their product-mix.