Discussion paper
DP13904 Markets and Markup: A New Empirical Framework and Evidence on Exporters from China
Firms that dominate global trade export to multiple countries and frequently change their foreign destinations. We develop a new empirical framework for analysing markup elasticities to the exchange rate in this environment. The framework embodies a new estimator of these elasticities that controls for endogenous market participation and a new classification of products based on Chinese linguistics to proxy for firms' power in local markets. Applying this framework to Chinese customs data, we document significant pricing-to-market for highly differentiated goods. Measured in the importer's currency, the prices of highly differentiated goods are far more stable than those of less differentiated products.
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