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Capital Importers Pay More for their Imports

Author

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  • Antonis Adam
  • Thomas Moutos

Abstract

We examine the effects that a country’s net capital flows have on the (border) prices that a country pays for its imports of goods. Using data from 2000 to 2009 for 11 euro area countries we utilize a pricing-to-market specification to study exporters’ pricing behavior to the rest of the countries in the sample, at the industry level, for 900 goods disseminated at the 4- digit Standard International Trade Classification (SITC- revision 3) level. This allows us to construct a panel dataset which contains observations across exporters, importers, industries and time, ending up with a total of 594,327 observations. We find a strong influence of the importing country’s net capital inflows on the border prices of its imports of goods. This result is robust across different specifications of the underlying model, as well to different sample dis-aggregations across types of capital flows, product categories, and exporters.

Suggested Citation

  • Antonis Adam & Thomas Moutos, 2012. "Capital Importers Pay More for their Imports," CESifo Working Paper Series 3723, CESifo Group Munich.
    • Handle: RePEc:ces:ceswps:_3723
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3723.pdf
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    References listed on IDEAS

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    1. Dani Rodrik & Arvind Subramanian, 2009. "Why Did Financial Globalization Disappoint?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 112-138, April.
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    3. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    4. Goldberg, Pinelopi K. & Verboven, Frank, 2005. "Market integration and convergence to the Law of One Price: evidence from the European car market," Journal of International Economics, Elsevier, vol. 65(1), pages 49-73, January.
    5. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
    6. Basu, Kaushik & Morita, Hodaka, 2006. "International credit and welfare: A paradoxical theorem and its policy implications," European Economic Review, Elsevier, vol. 50(6), pages 1507-1528, August.
    7. Antonis Adam & Thomas Moutos, 2008. "The Trade Effects of the EU-Turkey Customs Union," The World Economy, Wiley Blackwell, vol. 31(5), pages 685-700, May.
    8. 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.
    9. Katsimi, Margarita & Moutos, Thomas, 2011. "Inequality and the US import demand function," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 492-506, April.
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    11. Feenstra, Robert C. & Gagnon, Joseph E. & Knetter, Michael M., 1996. "Market share and exchange rate pass-through in world automobile trade," Journal of International Economics, Elsevier, vol. 40(1-2), pages 187-207, February.
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    More about this item

    Keywords

    capital flows; import prices; pricing to market; globalization; euro area;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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