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Trade and Prices with Heterogeneous Firms

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  • Robert Johnson

    (UC Berkeley)

Abstract

This paper estimates a heterogeneous firms trade model using disaggregate data on export values and prices. Prices contain information about differences in product quality across firms and countries that helps identify key mechanisms in the model. Examining within country variation in export prices across destination markets, I find that prices behave in a manner inconsistent with the benchmark model that ignores product quality differences across firms. In doing so, I demonstrate that export prices in most sectors are consistent with a model in which high productivity firms choose to produce high quality goods and charge high prices. Using model estimates, I also quantify the role of endogenous nontradability in accounting for variation in prices and trade flows, and construct an index of cross-country quality and variety within sectors.

Suggested Citation

  • Robert Johnson, 2008. "Trade and Prices with Heterogeneous Firms," 2008 Meeting Papers 244, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:244
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    References listed on IDEAS

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    Cited by:

    1. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    2. Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2015. "The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 777-792, October.
    3. Raphael Auer & Thomas Chaney, 2009. "Exchange Rate Pass‐Through in a Competitive Model of Pricing‐to‐Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 151-175, February.
    4. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    5. Yoichi Sugita, 2009. "Matching, Quality Upgrading, and Trade between Heterogeneous Firms," Global COE Hi-Stat Discussion Paper Series gd09-064, Institute of Economic Research, Hitotsubashi University.
    6. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," Working Papers 09-13, Center for Economic Studies, U.S. Census Bureau.
    7. Martin, Julien, 2012. "Markups, quality, and transport costs," European Economic Review, Elsevier, vol. 56(4), pages 777-791.
    8. Michael E. Waugh, 2009. "Human Capital, Product Quality, and Bilateral Trade," 2009 Meeting Papers 1204, Society for Economic Dynamics.
    9. Julien Martin & Isabelle Méjean, 2011. "Low-wage countries' competition, reallocation across firms and the quality content of exports," Working Papers halshs-00962485, HAL.
    10. Sabrina Chancelier, 2015. "El Rol de la Calidad en la Dirección del Comercio: Analizando el comportamiento de las empresas exportadoras," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 61, pages 127-153, January-D.
    11. László Halpern & Balázs Muraközy, 2012. "Innovation, productivity and exports: the case of Hungary," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(2), pages 151-173, January.
    12. Raphael A. Auer, 2009. "Taste Heterogeneity, Trade, and the Within-Industry Home Market Effect," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(IV), pages 387-403, December.
    13. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    14. Holger Gorg & Laszlo Halpern & Balazs Murakozy, 2010. "Why Do Within Firm-Product Export Prices Differ across Markets?," CERS-IE WORKING PAPERS 1003, Institute of Economics, Centre for Economic and Regional Studies.
    15. Holger Görg & Richard Kneller & Balázs Muraközy, 2012. "What makes a successful export? Evidence from firm‐product‐ level data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1332-1368, November.

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