Export Destinations and Input Prices

This article develops a model of heterogeneous firms that endogenously choose prices and product quality to build demand in export markets. New exporters optimally charge relatively low prices and produce low‐quality goods upon entry. Product quality, prices, and sales increase as demand grows. We structurally estimate model parameters using Chinese customs data. The estimated incentive to build future demand reduces average export prices by 0.7% and increases export sales by 4% upon entry. Endogenous demand accumulation causes estimated export prices, product quality, and sales to grow by 2.2%, 12%, and 79%, respectively, over the following five years.

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“…Following Kugler and Verhoogen (, ), Manova and Zhang (), and Bastos et al. (), we use this as a reasonable proxy for product quality.…”

Section: Three Stylized Facts From Chinese Customs Datamentioning

confidence: 99%

Price, Product Quality, and Exporter Dynamics: Evidence From China

Rodrigue

Tan

2019

Int Economic Review

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“…In Portuguese data, Bastos et al. () find that firms experiencing an exogenous increase in the share of sales to richer export destinations (where consumers have higher willingness to pay for quality) tend to pay more for material inputs . Our paper contributes to this this literature by shedding light on the dynamic interaction between learning about demand and quality choice in shaping the evolution of firm performance and prices over the life cycle…”

Section: Introductionmentioning

confidence: 99%

“… Kugler and Verhoogen () and Bastos et al. () adopt a similar method to estimate average input and output prices at the firm–year level. Donald and Lang () offer a discussion on how this method compares with related estimators.…”

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confidence: 99%

Learning, prices and firm dynamics

Bastos

Dias

Timoshenko

2018

Canadian J of Economics

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We document new facts about the evolution of firm performance and prices in international markets and propose a theory of firm dynamics emphasizing the interaction between learning about demand and quality choice to explain the observed patterns. Using data from the Portuguese manufacturing sector, we find that: (1) firms with longer spells of activity in export destinations tend to ship larger quantities at lower prices; (2) older exporters tend to use more expensive inputs; (3) the volatility of output and input prices tends to decline with export experience; and (4) input prices and quantities tend to increase with revenue growth within firms. We develop a model of endogenous input and output quality choices in a learning environment that is able to account for these patterns. Counterfactual simulations reveal that minimum quality standards on traded goods reduce welfare by lowering entry in export markets and reallocating resources from old and large towards young and small firms.

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“…The regressions in column (2) include firm and year fixed effects. Hence they exploit within-firm variation in market experience (across destination and over time) to identify the relationship between average 10 Kugler and Verhoogen (2012) and Bastos, Silva, and Verhoogen (2014) adopt a similar method to estimate average input and output prices at the firm-year level. Donald and Lang (2007) offer a discussion on how this method compares with related estimators.…”

Section: Prices and Firm Dynamicsmentioning

confidence: 99%

“…Using detailed firm-product records from the Colombian manufacturing sector, Kugler and Verhoogen (2012) find that larger plants tend to charge more for outputs and pay higher prices for material inputs. In Portuguese data, Bastos, Silva, and Verhoogen (2014) find that firms experiencing an exogenous increase in the share of sales to richer export destinations (where consumers have higher willingness to pay for quality) tend to pay more for material inputs. 2 Our paper contributes to this this literature by shedding light on the dynamic interaction between learning about demand and quality choice in shaping the evolution of firm performance and prices over the life cycle.…”

Section: Introductionmentioning

confidence: 97%

Learning, Prices, and Firm Dynamics

Bastos

Dias

Timoshenko

2017

Int. finance discuss. pap.

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We document new facts about the evolution of firm performance and prices in international markets, and propose a theory of firm dynamics emphasizing the interaction between learning about demand and quality choice to explain the observed patterns. Using data from the Portuguese manufacturing sector, we find that: (1) firms with longer spells of activity in export destinations tend to ship larger quantities at lower prices; (2) older exporters tend to use more expensive inputs; (3) revenue growth within destinations (conditional on initial size) tends to decline with market experience; and (4) input prices and quantities tend to increase with revenue growth within firms. We develop a model of endogenous input and output quality choices in a learning environment that is able to account for these patterns. Counterfactual simulations reveal that minimum quality standards on traded goods reduce welfare by lowering entry in export markets and reallocating resources from old and large towards young and small firms.

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Export Destinations and Input Prices

Cited by 113 publications

References 98 publications

Price, Product Quality, and Exporter Dynamics: Evidence From China

Price, Product Quality, and Exporter Dynamics: Evidence From China

Learning, prices and firm dynamics

Learning, Prices, and Firm Dynamics

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