Constant versus variable markups: Implications for the law of one price

Yilmazkuday, Hakan

doi:10.1016/j.iref.2016.04.003

Cited by 14 publications

(6 citation statements)

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“…As is evident, after controlling for distance effects due to duties/tariffs and transportation costs, the effects of distance on trade due to preferences is positive during the 1990s, which is against most of the studies in the literature using distance as a proxy for such observed trade costs. However, this result is consistent with some other studies in the literature such as byYilmazkuday (2016b) who also focus on the effects of distance through the preference of consumers toward exotic products coming from distant countries. The distance elasticity estimates become mostly insignificant over time (starting from 2005), potentially due to free trade agreements such as NAFTA showing its effects (gradually starting from 1994) when the U.S. might have started importing more products from nearby NAFTA countries.…”

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confidence: 92%

Three Essays on International Trade and Migration

Wang¹

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This dissertation encompasses three different topics on international trade and migration. The first chapter is the introduction. The second chapter investigates the short run effects of regional trade agreements on trade costs. It is widely accepted that the reinforcement of Regional Trade Agreements (RTAs) aiming at trade costs reduction among trade partners requires time. This paper investigates the effects of RTAs on trade costs over time by using unique micro-price data. As a key factor compared to the literature, excluding the local distribution costs, the trade costs we calculated are based on the arbitrage condition to equalize traded input prices across international cities. We confirm that having an RTA on average lowers trade costs significantly. Furthermore, data shows significant and negative effects of RTAs on trade costs over time. Specifically, besides the initial impact on trade costs, having an RTA continuously lower trade costs every year after the commencement of the RTA. Gravity variables such as distance, common language, colonial ties, free trade agreements, and adjacency are used to capture the effects of trade costs in empirical studies. The third chapter decomposes the overall effects of gravity variables on trade through three gravity channels: duties/tariffs (DC), transportation-costs (TC), and dyadic-preferences (PC). When PC is ignored as is typical in the literature, it is shown that nearly all gravity effects are trough distance; 29 percent vi through DC and 71 percent through TC. However, the additional channel of PC is introduced and shown to dominate other channels, with adjacency contributing about 45 percent, distance about 32 percent, colonial ties about 14 percent, free trade agreements about 7 percent, and common language about 2 percent. These results imply that gravity variables mainly capture the effects of demand shifters rather than supply shifters (as implied by the existing literature). The results are further connected to several existing discussions in the literature, such as welfare gains from trade and the distance puzzle. The fourth chapter utilizes an immigration inflow data set from OECD countries during the period of 1984 to 2015 to shed lights on how institutional quality affects the immigration rate. With the analysis in the fixed-effects framework, we construct a set of country-time specific institutional quality indexes to examine their effects on the immigration rate. The paper shows that other than the network effects, GDP difference, and migration costs, institutional qualities in both destination and source countries matter when it comes to potential migration decisions. Specifically, better socioeconomic conditions in the destination countries, and worse foreign debt, budget balance, government stability, internal conflicts, and corruption conditions in the source countries increase the immigration inflow. vii

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confidence: 92%

Three Essays on International Trade and Migration

Wang¹

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“…6 In this second methodology, we decompose the summation of the right hand side of the expression into its components. 7 All estimated g 's are signi…cant at the 10% level. The average R-squared values are about 0.54 and 0.16 for the …rst and the second stage of TSLS, respectively, where 0.54 is an indicator of strong instruments.…”

Section: Resultsmentioning

confidence: 94%

“…7 The decomposition of price dispersion for all goods is given in Figure 1 in levels and in Figure 2 in percentage terms when the …rst methodology is used for variance decomposition. 8 As is evident, the contribution of markups in the price dispersion are up to 85%, while the contribution of marginal costs are up to 100% across goods; the contribution of trade costs are again almost none in most cases (although there are few exceptions).…”

Section: Resultsmentioning

confidence: 99%

Price Dispersion across U.S. Districts of Entry

Yilmazkuday

2014

SSRN Journal

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This paper investigates the price dispersion of U.S. imports at the good-category level across U.S. districts of entry. Although there is a large heterogeneity across goods, on average, the implied markups of a simple model explain about 31% of the price dispersion, while the implied marginal costs of production explain about 69%; the e¤ects of trade costs, for which we have actual data, are almost none. The results are robust to the consideration of possible endogeneity problems, multiplicative versus additive trade costs, and measurement errors in prices.JEL Classi…cation: F12, F13, F14

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“…On the contrary, price dispersion – namely, a homogeneous product being sold at different prices by different exporters – can emerge, for several reasons, such as entry barriers and geographical separation of markets (Krugman, 1991, Yang et al, 2017), different marginal costs (Crucini and Yilmazkuday, 2014, Yilmazkuday, 2016), variations in consumer preferences (Grebitus et al, 2013), and monetary illusion (Fehr and Tyran, 2001). 2 Following this branch of literature, we aim at testing the presence or not of LOP in the international food trade network ( IFTN ), extending the analysis to the price-formation mechanism.…”

Section: Introductionmentioning

confidence: 99%

Spatial Distribution of the International Food Prices: Unexpected Heterogeneity and Randomness

Distefano

Chiarotti

Laio

et al. 2019

Ecological Economics

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Global food prices are typically analysed in a time-series framework. We complement this approach by focusing on the spatial price dispersion of the country-pair bilateral trade in the international food trade network ( IFTN ), for ten relevant commodities. The main purposes are to verify if the Law of One Price ( LOP ) holds and to investigate the emergence of randomness in the price-formation mechanism. We distinguish between the “internal” variance, which indicates the magnitude of price discrimination, and the “external” variance, that is a measure of price dispersion. We find that, for some commodities, spatial price dispersion is remarkable and persistent over time (i.e., failure of the LOP ) and that there exists a strict correlation between price spikes and peaks in spatial price variability. We test whether the price distribution can be replicated through a stochastic process of extraction. Surprisingly, the actual distribution of prices, for several commodities, is well described by a random distribution. Then, the process of data aggregation is not neutral because the information at the micro-level scale might be lost at the macro-scale, due to the complexity of the IFTN . Finally, we discuss some possible economic explanations of these outcomes and the main methodological, environmental, and policy consequences.

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Constant versus variable markups: Implications for the law of one price

Cited by 14 publications

References 50 publications

Three Essays on International Trade and Migration

Three Essays on International Trade and Migration

Price Dispersion across U.S. Districts of Entry

Spatial Distribution of the International Food Prices: Unexpected Heterogeneity and Randomness

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