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Markups, Quality, and Trade Costs

Luciana Juvenal and Natalie Chen

No 2020/036, IMF Working Papers from International Monetary Fund

Abstract: We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality.

Keywords: WP; trade cost; FOB price; free on board; unit value; export price; wine export; Tariffs; Exports; Public expenditure review; Export prices; Demand elasticity; North America; Distance; export unit values; heterogeneity; markups; quality; trade costs; exports data (search for similar items in EconPapers)
Pages: 46
Date: 2020-02-21
New Economics Papers: this item is included in nep-agr and nep-int
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Handle: RePEc:imf:imfwpa:2020/036