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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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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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