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Markups, Quality, and Trade Costs

Author

Listed:
  • Chen, Natalie

    (University of Warwick)

  • Juvenal, Luciana

    (International Monetary Fund)

Abstract

We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

Suggested Citation

  • Chen, Natalie & Juvenal, Luciana, 2019. "Markups, Quality, and Trade Costs," CAGE Online Working Paper Series 446, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:446
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    Cited by:

    1. Fiankor, Dela-Dem Doe, 2022. "Distance to destination and export price variation within agri-food firms," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321203, Agricultural Economics Society - AES.
    2. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    3. Dela‐Dem Fiankor & Fabio G. Santeramo, 2023. "Revisiting the impact of per‐unit duties on agricultural export prices," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(3), pages 1472-1492, September.
    4. Freitag, Andreas & Lein, Sarah M., 2023. "Endogenous product adjustment and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 140(C).
    5. Mundaca, Gabriela & Strand, Jon & Young, Ian R., 2021. "Carbon pricing of international transport fuels: Impacts on carbon emissions and trade activity," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    6. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    7. Gnangnon, Sèna Kimm, 2023. "The Quality of Aid for Trade Flows and Economic Complexity," EconStor Preprints 271538, ZBW - Leibniz Information Centre for Economics.
    8. Dela‐Dem Doe Fiankor & Bernhard Dalheimer & Daniele Curzi & Onno Hoffmeister & Bernhard Brümmer, 2024. "Does it matter how we ship the good apples out? On specific tariffs, transport modes, and agricultural export prices," Agricultural Economics, International Association of Agricultural Economists, vol. 55(3), pages 498-514, May.
    9. Dolores Añón Higón & Ioannis Bournakis, 2024. "Participation in global value chains (GVCs) and markups: firm evidence from six European countries," International Economics and Economic Policy, Springer, vol. 21(2), pages 515-539, May.
    10. Sèna Kimm Gnangnon, 2023. "Do Aid for Trade Flows Affect Technology Licensing in Recipient Countries?," JRFM, MDPI, vol. 16(12), pages 1-31, December.
    11. Sèna Kimm Gnangnon, 2024. "The quality of Aid for Trade flows and economic complexity," International Economics and Economic Policy, Springer, vol. 21(4), pages 705-747, October.
    12. Gnangnon, Sèna Kimm, 2023. "Effect of Aid for Trade on Recipient-Countries' Participation in Global Value Chains," EconStor Preprints 279713, ZBW - Leibniz Information Centre for Economics.
    13. Dela-Dem Doe, 2023. "Distance to destination and export price variation within agri-food firms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 50(2), pages 563-590.
    14. Sèna Kimm Gnangnon, 2022. "Do Aid for Trade Flows Help Reduce the Shadow Economy in Recipient Countries?," Economies, MDPI, vol. 10(12), pages 1-33, December.
    15. Takechi, Kazutaka, 2023. "Quality sorting, Alchian–Allen effect, and distance," Economics Letters, Elsevier, vol. 222(C).
    16. Bao, Alex & Bontems, Philippe & Cardebat, Jean-Marie & Chiappini, Raphael, 2024. "Exporters’ behaviour in the face of climate volatility," TSE Working Papers 24-1552, Toulouse School of Economics (TSE).
    17. Dolores Añon Higón & Ionnanis Bournakis, 2024. "Global Value Chains (GVCs) participation and Markups," Working Papers 2403, Department of Applied Economics II, Universidad de Valencia.

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    More about this item

    Keywords

    Distance; export unit values; heterogeneity; markups; quality; tariffs; trade costs; wine JEL Classification: F12; F14; F31;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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