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

  • 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)

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.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 78 (2012)
Issue (Month): 3 (January)
Pages: 860-877

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Handle: RePEc:sej:ancoec:v:78:3:y:2012:p:860-877
Contact details of provider: Web page: http://www.southerneconomic.org/

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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. 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.
  3. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Economic Policy, CEPR;CES;MSH, vol. 23, pages 51-91, 01.
  4. Baldwin, Richard & Ito, Tadashi, 2008. "Quality Competition Versus Price Competition Goods: An Empirical Classification," CEPR Discussion Papers 6952, C.E.P.R. Discussion Papers.
  5. 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.
  6. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  7. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  8. Thierry Mayer & Soledad Zignago, 2011. "Notes on CEPII’s distances measures: The GeoDist database," Working Papers 2011-25, CEPII research center.
  9. 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, 02.
  10. 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.
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