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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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Author Info
Michael Ferrantino
Robert M. Feinberg
Lauren Deason

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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://www1.american.edu/academic.depts/cas/econ/workingpapers/2009-03.pdf
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File Function: First version, 2009
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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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F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade

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  1. Catherine Y. Co, 2007. "Factors That Account for the Large Variations in U.S. Export Prices," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(3), pages 557-582, October. [Downloadable!] (restricted)
  2. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584. [Downloadable!] (restricted)
  3. Richard E. Baldwin & Tadashi Ito, 2008. "Quality competition versus price competition goods: An empirical classification," NBER Working Papers 14305, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Peter K. Schott, 2008. "The relative sophistication of Chinese exports," Economic Policy, CEPR, CES, MSH, vol. 23, pages 5-49, 01. [Downloadable!] (restricted)
    Other versions:
  5. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  7. Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. 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.
  9. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Blackwell Publishing, vol. 14(1), pages 69-86, 02. [Downloadable!] (restricted)
  10. George Alessandria & Joseph Kaboski, 2007. "Pricing-to-market and the failure of absolute PPP," Working Papers 07-29, Federal Reserve Bank of Philadelphia. [Downloadable!]
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