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Quality Competition and Pricing-to-Market: A Unified Framework for the Analysis of Bilateral Unit Values

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  • Michael J. Ferrantino

    ()
    (U.S. International Trade Commission, Office of Economics, Research Division, 500 E Street SW, Washington, D.C. 20436, USA;)

  • Robert M. Feinberg

    ()
    (American University, 4400 Massachusetts Avenue, NW, Washington, D.C. 20016-8029, USA)

  • Lauren Deason

    ()
    (University of Maryland and International Food Policy Research Institute (IFPRI), 2033 K St. NW, Washington, D.C. 20006-1002)

Abstract

This article presents a unified framework for analyzing two factors that have been independently studied as determinants of unit values in international trade: product differentiation by quality (which suggests that unit values should be positively correlated with exporters' per capita income) and pricing-to-market (which suggests they should be positively correlated with importers' per capita income). No previous work has considered both exporter and importer income effects and allowed these effects to vary by product. On a large sample of bilateral unit values for 2005, we find that about 56% of all Harmonized System (HS)-6 products demonstrate both significant exporter-income effects and importer-income effects, with the former predominating in prevalence and magnitude. Distance-related effects appearing directly in prices appear significantly larger than one would expect as a result of shipping margins.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2012)
Issue (Month): 3 (January)
Pages: 860-877

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Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:860-877

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  1. George Alessandria & Joseph P. Kaboski, 2011. "Pricing-to-Market and the Failure of Absolute PPP," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 3(1), pages 91-127, January.
  2. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  3. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 23, pages 51-91, 01.
  4. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 14(1), pages 69-86, 02.
  5. Mayer, Thierry & Zignago, Soledad, 2006. "Notes on CEPII’s distances measures," MPRA Paper 26469, University Library of Munich, Germany.
  6. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(3), pages 131-154, Summer.
  7. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 584.
  8. Baldwin, Richard & Ito, Tadashi, 2008. "Quality Competition Versus Price Competition Goods: An Empirical Classification," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6952, C.E.P.R. Discussion Papers.
  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 153-61, January.
  10. Catherine Y. Co, 2007. "Factors That Account for the Large Variations in U.S. Export Prices," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 143(3), pages 557-582, October.
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Cited by:
  1. Robert M. Feinberg, 2011. "Exports-at-Risk: the Effect of Multi-Market Contact in International Trade"," Working Papers, American University, Department of Economics 2011-09, American University, Department of Economics.

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