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Markups, Quality, and Trade Costs

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  • Chen, Natalie
  • Juvenal, Luciana

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," CEPR Discussion Papers 14204, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14204
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    Cited by:

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    2. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    3. Gnangnon, Sèna Kimm, 2023. "The Quality of Aid for Trade Flows and Economic Complexity," EconStor Preprints 271538, ZBW - Leibniz Information Centre for Economics.
    4. 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.
    5. 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).
    6. 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.
    7. 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.
    8. 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.
    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. Kristian Behrens & Sergei Kichko & Philip Ushchev, 2024. "ε‐ces preferences and trade," Review of International Economics, Wiley Blackwell, vol. 32(4), pages 1567-1586, September.
    11. Freitag, Andreas & Lein, Sarah M., 2023. "Endogenous product adjustment and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 140(C).
    12. 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).
    13. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    14. Gnangnon, Sèna Kimm, 2025. "Effect of the Multilateral Surveillance of Trade Policies on Economic Institutions, Participation in Global Value Chains and Export Upgrading in Developing Countries," EconStor Preprints 313119, ZBW - Leibniz Information Centre for Economics.
    15. Sèna Kimm Gnangnon, 2023. "Do Aid for Trade Flows Affect Technology Licensing in Recipient Countries?," JRFM, MDPI, vol. 16(12), pages 1-31, December.
    16. Lin Sun & Qiaoyun Fang & Zhaofang Ni & Michael R. Reed, 2025. "Not the priciest, but the best quality: A new interpretation of high import food price in China," Agribusiness, John Wiley & Sons, Ltd., vol. 41(1), pages 158-183, January.
    17. Takechi, Kazutaka, 2023. "Quality sorting, Alchian–Allen effect, and distance," Economics Letters, Elsevier, vol. 222(C).
    18. 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.
    19. Mundaca, Gabriela, 2024. "Short- and long-term effects of carbon taxation on the prices of products shipped by sea," Energy Policy, Elsevier, vol. 193(C).
    20. 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.
    21. Maria Bas & Vanessa Strauss-Kahn, 2024. "Lower prices or higher quality? Firms’ response to increased competition following trade liberalization," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 279-309, May.
    22. 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; Tariff; Trade costs; Wine;
    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
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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