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Chinese exports and U.S. import prices

Listed author(s):
  • Benjamin R. Mandel

This paper develops a technique to decompose price distributions into contributions from markups and marginal cost. The estimators are then used as a laboratory to measure the relationship between increasing Chinese competition and the components of U.S. import prices. The estimates suggest that the intensification of Chinese exports in the 2000s corresponded to substantial changes in the distributions of both the markups and marginal cost of U.S. imports. The entry of a Chinese exporter in an industry corresponded to rest-of-world exporters shrinking their markup (lowering prices by up to 30 percent) and increasing their marginal cost (raising prices by up to 50 percent). The fact that marginal cost increased as competition stiffened strongly suggests that the composition of non-Chinese exports shifted toward higher-quality varieties. The estimates also imply a pattern in the acquisition of market share by Chinese exporters: They enter at relatively low cost/quality and then subsequently undertake quality improvements and markup reductions. These results provide some of the first measures of the dual nature of trade’s procompetitive effects; exporters respond to tougher competition by simultaneously adjusting both markups and quality.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 591.

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Date of creation: 2013
Handle: RePEc:fip:fednsr:591
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  1. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
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  3. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d'Agliano, University of Milano.
  4. Jan De Loecker & Frederic Warzynski, 2009. "Markups and firm-level export status," NBER Working Papers 15198, National Bureau of Economic Research, Inc.
  5. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
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  10. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc.
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  12. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  13. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 477-527.
  14. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  15. Klette, Tor Jakob, 1999. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Journal of Industrial Economics, Wiley Blackwell, vol. 47(4), pages 451-476, December.
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  23. repec:pri:cepsud:231deloecker is not listed on IDEAS
  24. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  25. Beatriz de Blas & Katheryn Russ, 2010. "Understanding Markups in the Open Economy under Bertrand Competition," NBER Working Papers 16587, National Bureau of Economic Research, Inc.
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  29. Costas Arkolakis & Arnaud Costinot & Dave Donaldson & Andrés Rodríguez-Clare, 2015. "The Elusive Pro-Competitive Effects of Trade," NBER Working Papers 21370, National Bureau of Economic Research, Inc.
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