Markups, Quality, and Trade Costs

February 21, 2020

Preview Citation

Format: Chicago

Natalie Chen, and Luciana Juvenal. Markups, Quality, and Trade Costs, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

Subject: 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

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/036
Stock No:

WPIEA2020036
ISBN:

9781513529257
ISSN:

1018-5941

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