Pass-Through of Trade Costs to U.S. Import Prices

Forthcoming at Review of World Economics

36 Pages Posted: 22 Apr 2013 Last revised: 23 Jan 2015

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Date Written: January 1, 2015

Abstract

This paper measures the pass-through of trade costs into U.S. import prices by using actual data on duties/tariffs and freight-related costs. The key innovation is to decompose the indirect effects of trade costs (on prices) into the effects on markups, quality and productivity while measuring/interpreting the pass-through of trade costs into welfare. Robust to the consideration of variable versus constant markups, there is evidence for incomplete pass-through, mostly due to the negative indirect effects of trade costs on marginal costs, suggesting that lower trade costs are associated with imports that have higher marginal costs; markups are affected relatively less. When the effects of trade costs on marginal costs are further decomposed into their components, the positive contribution of quality dominates in all cases, followed by the negative effects of productivity, suggesting that lower trade costs are associated with higher-quality imports that have been produced with lower productivity.

Keywords: Pass-through, Trade Costs, Variable Markups, Quality, Productivity

JEL Classification: F12, F13, F14

Suggested Citation

Yilmazkuday, Hakan, Pass-Through of Trade Costs to U.S. Import Prices (January 1, 2015). Forthcoming at Review of World Economics. Available at SSRN: https://ssrn.com/abstract=2254664 or http://dx.doi.org/10.2139/ssrn.2254664

Hakan Yilmazkuday (Contact Author)

Florida International University (FIU) - Department of Economics ( email )

11200 SW 8th Street
Miami, FL 33199
United States

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