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Export price adjustments under financial constraints

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By exploring a rich dataset that links international trade transactions to a panel of Italian manufacturing firms, this paper provides new evidence on the role of financial constraints on price variations across exporting firms. After controlling for relevant firm characteristics and potential endogeneity of financial constraints, we find that constrained firms charge higher prices than unconstrained firms exporting in the same product-destination market. The positive price difference increases with the degree of horizontal differentiation of products, while it is smaller for vertically differentiated products, where there is more scope for quality adjustment. Our results are consistent with a scenario where constrained firms exploit demand rigidities to push up their prices to sustain revenues and keep operations going in the attempt to escape the constraints.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2013/13057.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number 13057.

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Length: 35 pages
Date of creation: Jul 2013
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Handle: RePEc:mse:cesdoc:13057

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Keywords: Financial constraints; export prices; horizontal and vertical differentiation; quality adjustment.;

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