Markups, Quality, and Trade Costs

Download or read book Markups, Quality, and Trade Costs written by Natalie Chen and published by International Monetary Fund. This book was released on 2020-02-21 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.