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Quality Competition and Pricing-to-Market: A Unified Framework for the Analysis of Bilateral Unit Values

Author

Listed:
  • Michael J. Ferrantino

    () (U.S. International Trade Commission, Office of Economics, Research Division, 500 E Street SW, Washington, D.C. 20436, USA;)

  • Robert M. Feinberg

    () (American University, 4400 Massachusetts Avenue, NW, Washington, D.C. 20016-8029, USA)

  • Lauren Deason

    () (University of Maryland and International Food Policy Research Institute (IFPRI), 2033 K St. NW, Washington, D.C. 20006-1002)

Abstract

This article presents a unified framework for analyzing two 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) and pricing-to-market (which suggests they should be positively correlated with importers' per capita income). No previous work has considered both exporter and importer income effects and allowed these effects to vary by product. On a large sample of bilateral unit values for 2005, we find that about 56% of all Harmonized System (HS)-6 products demonstrate both significant exporter-income effects and importer-income effects, with the former predominating in prevalence and magnitude. Distance-related effects appearing directly in prices appear significantly larger than one would expect as a result of shipping margins.

Suggested Citation

  • Michael J. Ferrantino & Robert M. Feinberg & Lauren Deason, 2012. "Quality Competition and Pricing-to-Market: A Unified Framework for the Analysis of Bilateral Unit Values," Southern Economic Journal, Southern Economic Association, vol. 78(3), pages 860-877, January.
  • Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:860-877
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    File URL: http://dx.doi.org/10.4284/0038-4038-78.3.860
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    References listed on IDEAS

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    1. E. Baldwin, Richard & Ito, Tadashi, 2011. "Quality Competition Versus Price Competition Goods: An Empirical Classification," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 110-135.
    2. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Economic Policy, CEPR;CES;MSH, vol. 23, pages 51-91, January.
    3. Catherine Y. Co, 2007. "Factors That Account for the Large Variations in U.S. Export Prices," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(3), pages 557-582, October.
    4. Mayer, Thierry & Zignago, Soledad, 2006. "Notes on CEPII’s distances measures," MPRA Paper 26469, University Library of Munich, Germany.
    5. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 647-678.
    6. 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.
    7. 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, February.
    8. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    9. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    10. George Alessandria & Joseph P. Kaboski, 2011. "Pricing-to-Market and the Failure of Absolute PPP," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(1), pages 91-127, January.
    11. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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    Citations

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    Cited by:

    1. Robert M. Feinberg, 2015. "“Exports-at-Risk”: The Effect of Multimarket Contact in International Trade," Southern Economic Journal, Southern Economic Association, vol. 81(3), pages 769-781, January.
    2. repec:eee:iburev:v:26:y:2017:i:6:p:1034-1050 is not listed on IDEAS
    3. Mallick, Sushanta & Marques, Helena, 2016. "Does quality differentiation matter in exporters' pricing behaviour? Comparing China and India," China Economic Review, Elsevier, vol. 40(C), pages 71-90.
    4. Mallick, Sushanta & Marques, Helena, 2016. "Pricing strategy of emerging market exporters in alternate currency regimes: The role of comparative advantage," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 68-81.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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