Comparative advantage as a source of exporters pricing power: Evidence from China and India by Sushanata Mallick and Helena Marques

Transcription

1 Comparative advantage as a source of exporters pricing power: Evidence from China and India by Sushanata Mallick and Helena Marques Discussion by Rudrani Bhattacharya National Institute of Public Finance and Policy March 14, 2014 Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 1 / and 15 In

2 Part I Summary of the paper Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 2 / and 15 In

3 Objective Role of product-level comparative advantage in exchange rate pass through (ERPT) to exporting firms prices in China and India Comparative advantage associated with lower fixed cost and higher market power Higher ERPT to export prices if cost effect dominates Lower ERPT to export prices if market power effect dominates Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 3 / and 15 In

4 Methodology Assumption: Firm-level productivity is a function of product-level Revealed Comparative Advantage (RCA) index and bilateral exchange rate Optimal price set by an exporting firm depends on its productivity and hence on product-level comparative advantage and exchange rate Panel data set from UN Comtrade consisting of location and product-specific export price data for China and India at 6-digit level Product-level RCA index (Hanson, 2012) to proxy comparative advantage Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 4 / and 15 In

5 Main findings In response to a depreciation of NEER Chinese firms reduce yuan prices to gain market share: Fixed cost effect Indian firms increase rupee prices (pricing-to market, hence incomplete ERPT): Market power effect Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 5 / and 15 In

6 Part II Comments Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 6 / and 15 In

7 Implied homogeneity assumption for firm-productivity Firm productivity: Function of product-level comparative advantage and bilateral exchange rate Homogeneous, not heterogeneous productivity across firms exporting a specific product Symmetric export price across firms for a specific product Product-level ERPT identifiable Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 7 / and 15 In

8 Firm productivity in India function of comparative advantage and exchange rate Can firm productivity be explained by comparative advantage and exchange rate in India? Are estimates of firm-level productivity based on firm level data support this assumption? Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 8 / and 15 In

9 Effect on volume of exports? Higher the pricing to market, lower response of export volume to exchange rate change Exploration of this issue would strengthen the story Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 9 / and 15 In

10 Role of imported intermediate inputs (Amiti, Itskhoki, Konings, 2012) Large exporters are simultaneously large importers of intermediate inputs Depreciation increases variable cost of inputs Firms optimally choose to keep mark-up high Incomplete ERPT to export prices Identification problem of market power channel and imported input cost channel Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 10 / and 15 In

11 Are large exporters also large importers of imported input in India? Non-financial manufacturing exporting firms in Prowess Spearman rank correlation Exports and imports of raw materials (in real terms) Exports (real) and raw material imports as a share of raw material purchase Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 11 / and 15 In

12 Findings Full sample Rank correlation coefficient Exports & imports 0.42*** in real terms Exports (real) & 0.21*** raw material imports/purchase No of observations Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 12 / and 15 In

13 Findings Exporters with exports to sales ratio > 30% (value at 75th percentile) Rank correlation coefficient Exports & imports 0.54*** in real terms Exports (real) & 0.27*** raw material imports/purchase No of observations 9246 Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 13 / and 15 In

14 Alternative possible explanation for low ERPT Incomplete ERPT to Indian export prices due to imported input cost effect Control for imported input intensity of exporting firms needed Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 14 / and 15 In

15 Thank you Discussion by Rudrani Bhattacharya (NIPFP)Comparative advantage as a source of exporters pricing power: March Evidence 14, 2014 from China 15 / and 15 In