Events

• Stephen Yeaple
  The Pennsylvania State University
   

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.