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Corsetti, G., Crowley, M., Han, L. and Song, H.

Markups and Markets: A New Empirical Framework and Evidence on Exporters from China

CWPE1815

Abstract: Firms that export to multilple markets dominate global trade. Do these firms adjust their export prices in response to time-varying policy or local market conditions? We explore this question by developing an estimator of the destination-specific markup elasticity to the exchange rate (a proxy for local market conditions) in conjunction with a new classification of product differentiation (a proxy for firms' market power). Applied to Chinese customs data, our framework unveils significant pricing-to-market for high-differentiation goods (20%), especially among exporters of final goods (33%). Measured in the local (importer's) currency, the prices of highly-differentiated goods exhibit significantly more stability than those of low-differentiation goods and intermediates.

Keywords: Exchange rates, pricing-to-market, product classification, differentiated goods, markup elasticity, trade elasticity, China

JEL Codes: F31 F41

Author links: Giancarlo Corsetti  Meredith Crowley  Lu Han  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1815.pdf

Open Access Link: https://doi.org/10.17863/CAM.33787