Markups, Quality, and Trade Costs

IMF Working Papers, February 21, 2020

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Markups, Quality, and Trade Costs

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Bibliographic details

• Authors: Natalie Chen, Luciana Juvenal
• Published: February 21, 2020
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781513529257.001

Authors and publication

• Authors: Natalie Chen, Luciana Juvenal
• Publication date: February 21, 2020
• Series: Working Paper No. 2020/036
• Issue: 036
• Volume: 2020
• Pages: 46
• DOI: https://doi.org/10.5089/9781513529257.001
• Stock No: WPIEA2020036
• ISBN: 9781513529257
• ISSN: 1018-5941

Research question and approach

• Investigates how exporters adjust their markups across destinations depending on:
  • bilateral distance,
  • tariffs,
  • quality of their exports.
• Methodology:
  • Theoretical model assuming trade costs are both ad valorem and per unit.
  • Empirical analysis using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

Model predictions

• Under the assumption that trade costs are both ad valorem and per unit, the model predicts:
  • Markups rise with distance.
  • Markups fall with tariffs.
  • These effects are heterogeneous and are smaller in magnitude for higher quality exports.

Empirical findings

• Data: Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.
• Main empirical result:
  • The data show strong support for the predictions of the model (markups rising with distance; markups falling with tariffs; heterogeneous effects smaller for higher quality exports).

Subjects and keywords

• Subject areas: Demand elasticity, Economic theory, Expenditure, Export prices, Exports, International trade, Prices, Public expenditure review, Tariffs, Taxes
• Keywords: Demand elasticity, Distance, export price, Export prices, export unit values, Exports, exports data, FOB price, free on board, heterogeneity, markups, North America, Public expenditure review, quality, Tariffs, trade cost, trade costs, unit value, wine export, WP

Source: IMF Working Paper "Markups, Quality, and Trade Costs" by Natalie Chen and Luciana Juvenal (February 21, 2020).

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