DP13904 Markets and Markup: A New Empirical Framework and Evidence on Exporters from China
|Author(s):||Giancarlo Corsetti, Meredith A Crowley, Lu Han, Huasheng Song|
|Publication Date:||August 2019|
|Keyword(s):||China, differentiated goods, Exchange Rates, markup elasticity, pricing-to-market, product classification, Trade Elasticity|
|JEL(s):||F14, F31, F41|
|Programme Areas:||International Trade and Regional Economics, International Macroeconomics and Finance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13904|
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.