Quality, trade, and exchange rate pass-through

This paper investigates the heterogeneous response of exporters to real exchange rate fluctuations due to product quality. We model theoretically the effects of real exchange rate changes on the optimal price and quantity responses of firms that export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. We test empirically the predictions of the model by combining a unique data set of highly disaggregated Argentinean firm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we find that firms significantly increase more their markups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These findings remain robust to different measures of quality, samples, specifications, and to the potential endogeneity of quality

International Trade Integration: A Disaggregated Approach

This paper investigates the sources and size of trade barriers at the industry level. We derive a micro-founded measure of industry-specific bilateral trade integration that has an in-built control for time-varying multilateral resistance. This trade integration measure is consistent with a broad range of recent trade models including the Anderson and van Wincoop (2003) framework, the Ricardian model by Eaton and Kortum (2002) and heterogeneous firms models. We use it to explore trade barriers for manufacturing industries in European Union countries between 1999 and 2003. We find a large degree of trade cost heterogeneity across industries. The most important trade barriers are transportation costs and policy factors such as Technical Barriers to Trade. Trade integration is generally lower for countries that opted out of the Euro or did not abolish border controls in accordance with the Schengen Agreement. Reductions in trade barriers explain about one-half of the growth in trade over the period 1999-2003 and are therefore a major driving force of the EU Single Market.Trade Integration, Gravity, Trade Costs, Multilateral Resistance, Industries, Disaggregation, European Union

Women’s Earning Power and the “Double Burden” of Market and Household Work

Bargaining theory predicts that married women who experience a relative improvement in their labor market position should experience a comparative gain within their marriage. However, if renegotiation possibilities are limited by institutional mechanisms that achieve long-term commitment, the opposite may be true, particularly if women are specialized in household activities and the labor market allows comparatively more flexibility in their labor supply responses. Evidence from the German Socio-Economic Panel indeed shows that, as long as renegotiation opportunities are limited, comparatively better wages for women exacerbate their “double burden” of market and household work.Marriage ; Bargaining ; Renegotiation

Women's Earning Power and the "Double Burden" of Market and Household Work

Bargaining theory suggests that married women who experience a relative improvement in their labour market position should experience a comparative gain within their marriage. However, if renegotiation possibilities are limited by institutional mechanisms that achieve long-term commitment, the opposite may be true, particularly if women are specialized in household activities and the labour market allows comparatively more flexibility in their labour supply responses. Evidence from the German Socio-Economic Panel indeed shows that, as long as renegotiation opportunities are limited, comparatively better wages for women exacerbate their 'double burden' of market and household work.bargaining, marriage and renegotiation

Intergenerational Mobility of Migrants : Is There a Gender Gap?

We examine gender differences in intergenerational patterns of social mobility for second-generation migrants. Empirical studies of social mobility have found that women are generally more mobile than men. Matching theory suggests that this may be because the importance of market characteristics (financial wealth and earning power) relative to non-market characteristics in the marriage market is lesser for women than men, and market characteristics can be intergenerationally more persistent than non-market characteristics. According to this interpretation, the mobility gender gap should be wider for second-generation migrant households, where gender roles remain more pronounced than in the non-migrant population. We explore this conjecture using data from the US General Social Survey. Our results show that daughters of first-generation migrants are intergenerationally more mobile than migrant’s sons, and more so than it is the case for non-migrants’ children.Marriage ; Migrants ; Social Mobility

The dynamics of trade and competition

We present, extend and estimate a model of international trade with firm heterogeneity in the tradition of Melitz (2003) and Melitz and Ottaviano (2005). The model is constructed to yield testable implications for the dynamics of international prices, productivity levels and markups as functions of openness to trade at a sectoral level. The theory lends itself naturally to a difference in differences estimation, with international differences in trade openness at the sector level reflecting international differences in the competitive structure of markets. Predictions are derived for the effects of both domestic and foreign openness on each economy. Using disaggregated data for EU manufacturing over the period 1989-1999 we find evidence that trade openness exerts a competitive effect, with prices and markups falling and productivity rising. Consistent with theory however, these effects diminish and may even revert in the longer term as less competitive economies become attractive havens from which to export from. We provide evidence that this entry into less open economies induces pro-competitive effects overseas in response to domestic trade liberalization.Competition, Globalization, Markups, Openness, Prices, Productivity, Trade

Oil Prices, Profits, and Recessions : An Inquiry Using Terrorism as an Instrumental Variable

Nearly all post-war recessions have been preceded by oil-price shocks, but is this because spikes in the price of petroleum cause economic downturns? Most research has ignored an identification problem : oil prices and the state of the world economy are endogenously determined. This paper uses terrorist incidents as an instrumental variable. In an international panel of industries, we show that after correction for simultaneity bias — though not before — the price of oil has large negative effects upon profitability. Our results seem to lend support to the claim that oil-price spikes can be a source of recessions.

Markups, quality, and trade costs

We investigate theoretically and empirically how exporters adjust their markups across destinations depending on bilateral distance, tariffs, and the quality of their exports. Under the assumption that trade costs are both ad valorem and per unit, our model predicts that markups rise with distance and fall with tariffs, but these effects are heterogeneous and are smaller in magnitude for higher quality exports. We find strong support for the predictions of the model using a unique data set of Argentinean firm-level wine exports combined with experts wine ratings as a measure of quality

Quality and the great trade collapse

We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms’ exports

Currency unions, trade and heterogeneity

How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to the effect of currency unions on international trade. While we estimate that currency unions are associated with a trade increase of around 38 percent on average, we find substantial underlying heterogeneity. Consistent with the predictions of our framework, we find effects around three times as strong for country pairs associated with small import shares, and a zero effect for large import shares. Our results imply that conventional homogeneous currency union estimates do not provide helpful guidance for countries considering to join a currency union. Instead, countries need to take into account the distribution of their trade shares to assess the impact of trade costs