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Faculty of Economics


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

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


Abstract: Firms that dominate global trade export to multiple countries and frequently change their foreign destinations. We develop an estimator of the destination-specific markup elasticity to the exchange rate that controls for endogenous market selection. To proxy for firms' power in local markets, we introduce a new classification of products based on Chinese linguistics that distinguishes between highly and less differentiated goods. Using Chinese customs data, we show that controlling for selectivity unveils significant pricing-to-market for highly differentiated goods. Measured in the importer's currency, the prices of highly differentiated goods are more stable than those of less differentiated products.

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  


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