Markups, Quality, and Trade Costs

Markups, Quality, and Trade Costs
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Volume/Issue: Volume 2020 Issue 036
Publication date: February 2020
ISBN: 9781513529257
$18.00
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Topics covered in this book

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Exports and Imports , Economics- Macroeconomics , Public Finance , Taxation - General , 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

Summary

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.