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Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices
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Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices

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  • Stephen Yeaple

    (Pennsylvania State University)

Abstract

Modern trade models attribute the dispersion of prices across countries to physical and man-made barriers to trade, to the pricing-to-market by heterogeneous producers, and to differences in the quality of output offered by firms. This paper analyzes a quantitative general equilibrium model that incorporates all three of these mechanisms. Estimating the model parameters from Chinese firm-level trade data, we find that our model that incorporates per unit trade costs imply lower gains from trade relative to standard models because these costs are a greater burden to the most productive firms. We also show that changes in specific trade costs induce larger shifts in import prices than do changes in ad valorem trade costs that equivalently restrict trade. The results highlight the importance of modelling "Washington Apples" effects in quantitative trade models.

Suggested Citation

  • Stephen Yeaple, 2018. "Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices," 2018 Meeting Papers 507, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:507
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    Cited by:

    1. Carsten Eckel & Florian Unger, 2023. "Credit Constraints, Endogenous Innovations, And Price Setting In International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1715-1747, November.
    2. Drivas, Kyriakos & Kalyvitis, Sarantis & Katsimi, Margarita, 2023. "Export prices and markups with a common currency: Empirical evidence from Greek exporting firms and euro adoption," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 79-98.
    3. Robin Kaiji Gong & Yao Amber Li & Kalina Manova & Stephen Teng Sun & Kalina B. Manova, 2023. "Tickets to the Global Market: First US Patent Awards and Chinese Firm Exports," CESifo Working Paper Series 10790, CESifo.
    4. Jingyi Wang & Shuguang Liu & Yubin Zhao, 2023. "Spatial–Temporal Evolution and Driving Factors of Economic Dual Circulation Coordinated Development in China’s Coastal Provinces," Sustainability, MDPI, vol. 15(14), pages 1-21, July.
    5. Gilad Sorek, 2024. "Monopolistic Competition and Quality Innovation with Variable Demand Elasticity," Auburn Economics Working Paper Series auwp2024-05, Department of Economics, Auburn University.
    6. Mengzhou Qin & Zijie Fan & Yuan Zhong, 2022. "The Global Value Chain and Welfare Effects of Tariffs—Counterfactual Analysis of Sino–US Economic and Trade Frictions," Sustainability, MDPI, vol. 14(14), pages 1-22, July.
    7. Zheng, Han & Fujii, Daisuke, 2021. "Nonlinear Pricing in the Transport Industry and the Gains from Trade," Discussion paper series HIAS-E-112, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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