Markups, Quality, and Trade Costs

47 Pages Posted: 24 Apr 2020

See all articles by Natalie Chen

Natalie Chen

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR)

Luciana Juvenal

International Monetary Fund (IMF)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2020

Abstract

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.

Keywords: Patterns of trade, Trade models, Demand elasticity, Financial statistics, Export prices, Distance, export unit values, heterogeneity, markups, quality, tariffs, trade costs., WP, trade cost, valorem, markup, export price, wine spectator

JEL Classification: F12, F14, F31, E01, F1, O24, C, F13

Suggested Citation

Chen, Natalie and Juvenal, Luciana, Markups, Quality, and Trade Costs (February 2020). IMF Working Paper No. 20/36, Available at SSRN: https://ssrn.com/abstract=3583403

Natalie Chen (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 24 7652 8419 (Phone)
+44 24 7652 3032 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luciana Juvenal

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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