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Import prices and the competing goods effect

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  • Phillip Swagel

Abstract

I use disaggregated U.S. data from 1978 to 1988 to examine the impact of changes in the prices of imported manufactured goods on corresponding domestic prices--the "competing goods effect." I use an econometric specification which allows for product differentiation between domestic and imported goods, and provides measures of exchange rate pass-through and economies of scale. ; I find that the impact of import prices on domestic prices varies substantially by industry, with statistically significant effects in nine of nineteen two-digit SIC manufacturing categoric:s. However, even where the effects are statistically significant, they are typically small in economic terms. On the whole, I do not find support for the anecdotal evidence that firms in US manufacturing industries take advantage of the reduced competitive discipline of higher ilnport prices. Because import prices are not a substantial determinant of domestic prices in the U.S., this implies that the consequent danger of imported inflation is small.>

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 508.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:508

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Related research

Keywords: Imports ; Prices;

References

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  1. Robert C. Feenstra & Joseph E. Gagnon & Michael M. Knetter, 1993. "Market Share and Exchange Rate Pass-Through in World Automobile Trade," NBER Working Papers 4399, National Bureau of Economic Research, Inc.
  2. Feinberg, Robert M., 1996. "A simultaneous analysis of exchange-rate passthrough into prices of imperfectly substitutable domestic and import goods," International Review of Economics & Finance, Elsevier, vol. 5(4), pages 407-416.
  3. Eric O'N. Fisher, 1987. "A model of exchange rate pass-through," International Finance Discussion Papers 302, Board of Governors of the Federal Reserve System (U.S.).
  4. Levinsohn, J., 1991. "Testing the Imports-As-Market-Discipline Hypothesis," Working Papers 272, Research Seminar in International Economics, University of Michigan.
  5. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  6. Basu, S.: Fernald, J.G., 1993. "Constant Returns and Small Markups in U.S. Manufacturing," Papers 93-19, Michigan - Center for Research on Economic & Social Theory.
  7. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
  8. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
  9. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  10. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  11. Kenneth A. Froot & Paul Klemperer, 1989. "Exchange Rate Pass-Through When Market Share Matters," NBER Working Papers 2542, National Bureau of Economic Research, Inc.
  12. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  13. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 205-28, May.
  14. Catherine J. Morrison, 1990. "Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach," NBER Working Papers 3355, National Bureau of Economic Research, Inc.
  15. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
  16. Knetter, Michael M, 1994. "Did the Strong Dollar Increase Competition in U.S. Product Markets?," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 192-95, February.
  17. Peter Hooper & Catherine L. Mann, 1989. "Exchange Rate Pass-through in the 1980s: The Case of U.S. Imports of Manufactures," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 297-337.
  18. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
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Citations

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Cited by:
  1. Scott Bradford, 2000. "Rents, Votes, and Protection: Explaining the Structure of Trade Barriers Across Industries," Econometric Society World Congress 2000 Contributed Papers 1717, Econometric Society.
  2. Dekle, Robert, 1998. "The yen and Japanese manufacturing employment," Journal of International Money and Finance, Elsevier, vol. 17(5), pages 785-801, October.
  3. Gordhan K. Saini, 2009. "Non-tariff measures and Indian textiles and clothing exports," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2009-002, Indira Gandhi Institute of Development Research, Mumbai, India.
  4. Feinberg, Robert M., 1996. "A simultaneous analysis of exchange-rate passthrough into prices of imperfectly substitutable domestic and import goods," International Review of Economics & Finance, Elsevier, vol. 5(4), pages 407-416.
  5. Steven B. Kamin & Mario Marazzi & John W. Schindler, 2004. "Is China "exporting deflation"?," International Finance Discussion Papers 791, Board of Governors of the Federal Reserve System (U.S.).
  6. Gordhan K. Saini, 2009. "Non-Tariff Measures and Indian Textiles and Clothing Exports," Trade Working Papers 22407, East Asian Bureau of Economic Research.

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