NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Sichuang Xu

Hong Kong University of Science and Technology
Department of Economics
1 University Road
Clear Water Bay, Kowloon
Hong Kong
Hong Kong
Hong Kong SAR-PRC.

E-Mail: sxuaf@connect.ust.hk
Institutional Affiliation: Hong Kong University of Science and Technology

NBER Working Papers and Publications

February 2019Quality, Variable Markups, and Welfare: A Quantitative General Equilibrium Analysis of Export Prices
with Haichao Fan, Yao Amber Li, Stephen R. Yeaple: w25611
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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