Search

Using Chinese microdata from 2000 to 2013, we document how demand shocks in export markets lead multi‐product exporters to adjust markups across products. We find that, in response to positive demand shocks, quality‐based competitive multi‐product firms increase product markups significantly, particularly for core products, whereas cost‐based competitive multi‐product firms respond by reducing product markups. The reason for this is that positive foreign demand affects markups through two opposite channels: pro‐innovative effects and pro‐competitive effects. Pro‐innovative effects are predominant among quality‐based competitive multi‐product firms, and these firms respond to positive foreign demand shocks by increasing product quality, prices, and markups. Pro‐competitive effects are predominant among cost‐based competitive multi‐product firms, and these firms respond to positive foreign demand shocks by lowering product cost, prices, and markups. We demonstrate the presence of these mechanisms empirically. The results imply that firms with different competition strategies should adopt different measures in response to foreign demand shocks. [ABSTRACT FROM AUTHOR]

How do manufacturing exports react to the real exchange rate and to foreign demand? We investigate this question with a Chilean panel data spanning from 2003Q1 to 2016Q4, using publicly available data. In the long term, we find that exports strongly co‐integrate with external demand, whereas not with the level of the real exchange rate. The short‐run elasticities of manufacturing exports differ in size: (a) the elasticity of foreign demand—approximated by trading partners' activity aggregates—ranges between 0.8 and 1.4; and (b) the elasticity with respect to the bilateral real exchange rate is comprehended in the interval [0.4–0.6]. Core estimated elasticities pass usual robustness checks. The fall in manufacturing exports' growth in 2014–16 is consistent with a persistent slowdown in foreign demand, which has been partially offset by an average depreciation of the bilateral real exchange rate (with respect to destination countries of these exports). The transience of the effect of the real exchange rate is coherent with its exhibited stationarity and also consistent with its role of shock absorber. [ABSTRACT FROM AUTHOR]