ABSTRACT ———————————————————————————————————— Quantitative results from a large class of structural gravity models of international trade depend critically on a single parameter governing the elasticity of trade with respect to trade frictions. We provide a new method to estimate this elasticity and illustrate the merits of our approach relative to the estimation strategy of Eaton and Kortum (2002). We employ this method on data for 123 developed and developing countries for the year 2004 using new disaggregate price and trade flow data. Our benchmark estimate for all countries is approximately 4.5, nearly 50 percent lower than the alternative estimation strategy would suggest. This difference implies a doubling of the measured welfare costs of autarky across a large class of widely used trade models.

G-MonD Working Paper n°35 For sustainable and inclusive world development ha l-0

This paper uses new customs data on the universe of Chinese trading firms to infer the relative importance of production efficiency and product quality for firms’ export success. We establish five novel stylized facts. First, firms charging higher export prices earn larger revenues within each destination, have bigger worldwide sales, and export to more markets. Second, firms that pay higher import prices offer higher export prices, have bigger worldwide sales, and export to more markets. Third, firms set higher prices in larger, richer and more distant markets. Fourth, there is a positive correlation between export price and revenue across destinations within a firm. Finally, firms with larger worldwide export revenues and more export markets pay a wider range of import prices and offer a broader menu of export prices. These results suggest that more successful exporters use higher-quality inputs to produce higher-quality goods (stylized facts 1 and 2) and that firms vary both product quality and mark-ups across destinations in response to market toughness and consumer income (stylized facts 3, 4 and 5).

Abstract The unit values of internationally traded goods are heavily influenced by quality. We model this in an extended monopolistic competition framework where, in addition to choosing price, firms simultaneously choose quality. We allow countries to have non-homothetic demand for quality. The optimal choice of quality by firms reflects this non-homothetic demand as well as the costs of production, including transport costs and tariffs. The implied gravity equation includes new terms reflecting quality. We estimate the gravity equation using detailed bilateral trade data for over 150 countries during 1984-2008. Our system identifies quality and quality-adjusted prices, from which we will construct price indexes for imports and exports for each country that will be incorporated into the next generation of the Penn World

In this paper, we provide a general model discussing the impact of non-homothetic preferences on the vertical comparative advantage of countries, i.e. the existence of demand-based determinants of the quality content of production and exports. We show that while average income positively impacts the quality mix of a country’s exports, the impact of inequality depends on the shape of the curve describing the evolution of the income share devoted to high-quality varieties. Along levels of income where this curve is increasing and convex, inequality increases aggregate demand for high quality varieties, more and more rapidly along income. Our empirical results on the quality content of bilateral export flows within the enlarged EU confirm our theoretical predictions. We show that a country’s income distribution has a significant impact on the quality of its exports. Moreover, the impact of inequality on the quality of exports is all the more positive that the exporter is rich. Our estimations are robust to instrumentation and inclusion of controls for supply-side determinants. In a quantification exercise, we show that the positive effect of inequality can be substantial and is magnified when coupled with an increase in average income. This suggests that a growing middle class is decisive for internal demand to drive quality

We study the pro-competitive effects of international trade, or lack thereof, in models with monopolistic competition, firm-level heterogeneity, and variable markups. Under standard restrictions on consumers ’ demand and the distribution of firms ’ productivity, we derive two theoretical results. First, although markups vary across firms, the distribution of markups and the share of aggregate profits in revenues are invariant to changes in openness to trade. Second, although the distribution of markups and the share of aggregate profits in revenues are unaffected by trade, gains from trade liberalization are weakly lower than those predicted by the models with constant How large are the gains from trade liberalization? In earlier work, Arkolakis, Costinot, and Rodríguez-Clare (2012), ACR hereafter, have shown that in an important class of trade models, the answer is pinned down by two statistics: (i) the share of expenditure on domestic goods, λ; and (ii) an elasticity of imports with respect to variable trade costs,

Abstract. This paper examines the variation in export prices across firms, products and destinations to distinguish between alternative heterogeneous firm models of international trade. We establish five stylized facts using new data on the universe of Chinese trading firms. First, firms charging higher export prices earn larger revenues within each destination, have greater worldwide sales, and export to more markets. Second, firms that pay higher import prices set higher export prices, have greater worldwide sales, and export to more markets. Third, firms offer higher prices in larger, richer and more distant markets. Fourth, there is a positive correlation between export price and revenue across destinations within a firm. Finally, firms that export more to more countries pay a wider range of import prices and offer a broader menu of export prices. None of the heterogeneous firm models in the literature can match all of these patterns. Our results are instead consistent with quality differentiation across firms (stylized facts 1 and 2) and firms adjusting both quality and mark-ups across destinations in response to market toughness (stylized facts 3, 4 and 5).

We present a set of empirical regularities that characterize the export activity of firms. We decompose firm-level exports by product category across destination markets in a

This paper directly estimates the deviation in prices between those done within a multinational and those done at arm's length while controlling for firm and destination characteristics. We find significant transfer pricing behavior, with prices diverging by 11%. Transfer pricing is due primarily to tax havens, not simply low-tax countries. During our sample, transfer pricing resulted in a 1 % reduction in French corporate tax revenue.

Abstract I study the effect of income inequality on trade flows. I document that higher income inequality increases the value and quantity, but lowers the average price, of differentiated goods but has little effect for homogeneous goods. Given the importance of firms pricing power for this result, I introduce non-homothetic preferences into a monopolistic competition model of trade to generate income-group specific mark-ups and consumption patterns. The model can explain about 30% of the observed relationship between inequality and trade value, quantity, and unit value of traded goods. Additionally, the trade model implies the high income consumers pay a 5.5% mark-up on identical goods that are sold to all income groups, consistent with estimates derived from USA grocery data. JEL Classification: F12, F16, F61 L11