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Trade and Prices with Heterogeneous Firms

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  • Robert Johnson

    (UC Berkeley)

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    Abstract

    This paper estimates a heterogeneous firms trade model using disaggregate data on export values and prices. Prices contain information about differences in product quality across firms and countries that helps identify key mechanisms in the model. Examining within country variation in export prices across destination markets, I find that prices behave in a manner inconsistent with the benchmark model that ignores product quality differences across firms. In doing so, I demonstrate that export prices in most sectors are consistent with a model in which high productivity firms choose to produce high quality goods and charge high prices. Using model estimates, I also quantify the role of endogenous nontradability in accounting for variation in prices and trade flows, and construct an index of cross-country quality and variety within sectors.

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    File URL: http://www.economicdynamics.org/meetpapers/2008/paper_244.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 244.

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    Date of creation: 2008
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    Handle: RePEc:red:sed008:244

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    1. Andrew B. Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2007. "Firms in International Trade," CEP Discussion Papers, Centre for Economic Performance, LSE dp0795, Centre for Economic Performance, LSE.
    2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics, Boston College Department of Economics 593, Boston College Department of Economics.
    3. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 3(2), pages 60-88, May.
    4. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
    5. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 441-487, 05.
    6. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2008. "Productivity, quality and exporting behavior under minimum quality constraints," MPRA Paper 24146, University Library of Munich, Germany.
    7. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(2), pages 646-677, May.
    8. Costas Arkolakis, 2007. "Market Access Costs and the New Consumers Margin in International Trade," 2007 Meeting Papers, Society for Economic Dynamics 234, Society for Economic Dynamics.
    9. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(1), pages 289-336, 02.
    10. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
    11. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
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    Cited by:
    1. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers, Swiss National Bank, Study Center Gerzensee 09.05, Swiss National Bank, Study Center Gerzensee.
    2. Thomas Chaney & Raphael, 2008. "Exchange rate pass-through in a competitive model of pricing-to-market," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.).
    3. Pablo D. Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2009. "Income Distribution, Product Quality, and International Trade," NBER Working Papers 15329, National Bureau of Economic Research, Inc.

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