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

45 Pages Posted: 4 Mar 2019 Last revised: 10 Mar 2019

See all articles by Haichao Fan

Haichao Fan

Fudan University - School of Economics

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies)

Sichuang Xu

Hong Kong University of Science and Technology (HKUST)

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

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Date Written: February 2019

Abstract

Modern trade models attribute the dispersion of international prices 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 presents a general equilibrium model that incorporates all three of these mechanisms. Our model allows us to confront Chinese firm-level data on the prices charged and revenues earned across markets. We show that all three mechanisms are necessary to fit the distribution of prices and revenues across firms and markets. Accounting for endogenous quality heterogeneity across markets and firms is shown to be critical for the welfare implications of trade and for the response of prices to trade and tariff shocks

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Suggested Citation

Fan, Haichao and Li, Yao Amber and Xu, Sichuang and Yeaple, Stephen R., Quality, Variable Markups, and Welfare: a Quantitative General Equilibrium Analysis of Export Prices (February 2019). NBER Working Paper No. w25611. Available at SSRN: https://ssrn.com/abstract=3346258

Haichao Fan (Contact Author)

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies) ( email )

Department of Economics, Hong Kong U of Sci&Tech
Clear Water Bay, Kowloon, Hong Kong SAR, China
Kowloon
Hong Kong

HOME PAGE: http://yaoli.people.ust.hk/

Sichuang Xu

Hong Kong University of Science and Technology (HKUST) ( email )

Clear Water Bay
Hong Kong

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
8148655452 (Phone)

National Bureau of Economic Research (NBER)

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