Corsetti, G., Han, L., Crowley, M. and Song, H.
Markets and Markups: A New Empirical Framework and Evidence on Exporters from China
WP Number: 1805
Abstract: Exporting firms frequently change the set of foreign markets they serve: changes in the pattern of destinations for a firm's product convey information on unobservable factors affecting pricing and market participation. Building on this insight, we show how to construct a "trade-pattern" fixed effect estimator that helps reduce omitted variable and selection biases in analyses of pricing-to-market. Using this estimator and a new product classification, we document substantial markup elasticities to the exchange rate among exporters of highly differentiated goods, accounting for half of China's exports. Conversely, we find little evidence of pricing-to-market in the trade of less differentiated goods.
Keywords: China, differentiated goods, exchange rate, markup elasticity, pricing-to-market, product classification, trade pattern
JEL Codes: F31 F41 F14
Author links: Giancarlo Corsetti Meredith Crowley
PDF: wp1805.pdf 
Open Access Link: 10.17863/CAM.33787
