Export Prices and Market Access of Exporting Countries: Theories and Evidence
Choi, Moon Jung, Department of Economics, University of Virginia
McLaren, John, Department of Economics, University of Virginia
Harrigan, James, Department of Economics, University of Virginia
I investigate theoretically and empirically how bilateral and multilateral market access affects product-level FOB export prices. Bilateral market access is measured by product transport costs from a country to a particular destination market, while multilateral market access is measured by overall relative distance of a country from the rest of the world. In the theory chapter, I model an open economy with four countries based on the quality heterogeneous-firms trade model and explain how market access affects export prices through a selection mechanism. The higher the transport costs from a country to a destination market, or the less remote a country with its higher wage, the more capable are the firms that select into the foreign market. The model yields opposite predictions for two types of industries. In price-competing industries, where the more capable firms have low marginal costs and sell at low prices, export prices decrease with transport costs, but do not vary with remoteness. In contrast, in quality-competing industries, where the more capable firms have high quality and high marginal cost, and sell at high prices, export prices increase with transport costs, but decrease with remoteness, and these effects are magnified as the scope for quality heterogeneity increases. In the empirical chapter, I test the model's prediction by examining U.S. import data at a very narrowly-defined product level with remoteness and transport costs used as proxies for multilateral and bilateral market access, respectively. To address potential endogeneity issues, I use distance and import quantity as instruments for product-country level transport ii costs and find negative remoteness and positive transport costs effects on FOB unit values of imported products to the U.S., which support the model's prediction under quality competition. By using industry-specific proxies for the scope for quality heterogeneity, such as the quality ladder length and the quality industry indicator, I further explore cross-industry variations in the magnitude of these effects.
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PHD (Doctor of Philosophy)
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