Working Paper: CEPR ID: DP13904
Authors: Meredith A. Crowley; Giancarlo Corsetti; Lu Han; Huasheng Song
Abstract: Firms that dominate global trade export to multiple countries and frequently change their foreign destinations. We develop a new empirical framework for analysing markup elasticities to the exchange rate in this environment. The framework embodies a new estimator of these elasticities that controls for endogenous market participation and a new classification of products based on Chinese linguistics to proxy for firms' power in local markets. Applying this framework to Chinese customs data, we document significant pricing-to-market for highly differentiated goods. Measured in the importer's currency, the prices of highly differentiated goods are far more stable than those of less differentiated products.
Keywords: exchange rate; markup elasticity; pricing-to-market; trade pattern; product classification; differentiated goods; China
JEL Codes: F31; F41; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| markup elasticities (H30) | exchange rates (F31) |
| firm size (L25) | markup elasticities (H30) |
| product differentiation (L15) | markup elasticities (H30) |
| ownership type (R21) | markup elasticities (H30) |
| time since abandonment of dollar peg (F31) | markup elasticities (H30) |
| cross-market demand elasticities (D12) | markup adjustments (L11) |