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Quality competition, Pricing-To-Market and Non-Tariff measures: A Unified Framework For the Analysis of Bilateral Unit Values

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  • Michael Ferrantino
  • Robert M. Feinberg
  • Lauren Deason

Abstract

This paper presents a unified framework for analyzing several 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), pricing-to-market (which suggests they should be positively correlated with importers' per capita income), and non-tariff measures (which suggests that remaining residuals may contain evidence of trade barriers). On a large sample of bilateral unit values for 2005, we find that about 58 percent of all HS-6 products demonstrate both significant quality-ladder effects and pricing-to-market effects, with quality-ladder effects predominating in importance. Distance-related effects appearing directly in prices appear significantly larger than one would expect as a result of shipping margins. We also rank importers by the remaining unexplained variation in import prices, and examine whether these variations are plausibly related to non-tariff measures.

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File URL: http://w.american.edu/cas/economics/repec/amu/workingpapers/2009-03.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by American University, Department of Economics in its series Working Papers with number 2009-03.

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Date of creation: Mar 2009
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Handle: RePEc:amu:wpaper:2009-03

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Web page: http://www.american.edu/cas/economics/

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  1. Baldwin, Richard & Ito, Tadashi, 2008. "Quality Competition Versus Price Competition Goods: An Empirical Classification," CEPR Discussion Papers 6952, C.E.P.R. Discussion Papers.
  2. Thierry Mayer & Soledad Zignago, 2011. "Notes on CEPII’s distances measures: The GeoDist database," Working Papers 2011-25, CEPII research center.
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  4. George Alessandria & Joseph Kaboski, 2007. "Pricing-to-market and the failure of absolute PPP," Working Papers 07-29, Federal Reserve Bank of Philadelphia.
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  9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  10. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  11. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2007. "Specialisation across Varieties within Products and North-South Competition," Working Papers 2007-06, CEPII research center.
  12. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  13. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 69-86, 02.
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