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Faculty of Economics

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

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

CWPE1815

Abstract: Exporting firms frequently change the set of foreign markets they serve: changes in the pattern of destinations for a firm's product convey information on unobservable factors affecting pricing and market participation. Building on this insight, we show how to construct a "trade-pattern" fixed effect estimator that helps reduce omitted variable and selection biases in analyses of pricing-to-market. Using this estimator and a new product classification, we document substantial markup elasticities to the exchange rate among exporters of highly differentiated goods, accounting for half of China's exports. Conversely, we find little evidence of pricing-to-market in the trade of less differentiated goods.

Keywords: exchange rate, markup elasticity, pricing-to-market, trade pattern, product classification, differentiated goods, China

JEL Codes: F31 F41 F14

Author links: Giancarlo Corsetti  Meredith Crowley  

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

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