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Markups, Quality, and Trade Costs

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  • Luciana Juvenal
  • Natalie Chen

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

  • Luciana Juvenal & Natalie Chen, 2020. "Markups, Quality, and Trade Costs," IMF Working Papers 2020/036, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2020/036
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    More about this item

    Keywords

    WP; trade cost; FOB price; free on board; unit value; export price; wine export; Tariffs; Exports; Public expenditure review; Export prices; Demand elasticity; North America; Distance; export unit values; heterogeneity; markups; quality; trade costs; exports data;
    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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