Why do within‐firm–product export prices differ across markets? Evidence from Hungary

• Author: Holger Görg,László Halpern,Balázs Muraközy
• Published date: 01 June 2017
• Date: 01 June 2017
• DOI: http://doi.org/10.1111/twec.12442

Why do within-firm–product export prices

differ across markets? Evidence from

Hungary

Holger G€

org

1

,L



aszl

o Halpern

2

and Bal

azs Murak€

ozy

3

1

Kiel Institute for the World Economy, Christian-Albrechts-University of Kiel, CEPR, Kiel, Germany,

2

CERS HAS, CEPR, CEU, Budapest, Hungary and

3

CERS HAS, Budapest, Hungary

1. INTRODUCTION

RECENT theories emphasise the role of firm heterogeneity and selection in international

trade. More productive firms are more likely to be exporters, and the most productive

exporters ship more goods to more markets (see, for example, Bernard et al., 2007). These

facts can be explained with (by now) standard heterogeneous firm-type models 

alaMelitz

(2003). More recently, the literature has also evolved towards looking into export prices in

addition to quantities. Here, the stylised fact emerges that exporters charge higher prices for

their products in foreign markets than non-exporters in the domestic market (e.g. Iacovone

and Javorcik, 2012; Johnson, 2012; Hallak and Sivadasan, 2013). This may be due to expor-

ters producing higher quality goods, or because they charge different f.o.b. prices in different

markets.

This is where our study comes in. We have access to recent highly disaggregated, firm–

product category-destination data which make it possible to analyse the extent of h eterogene-

ity in prices among exporters at a disaggregated level. In this study, we document that Hun-

garian firms charge different prices for the same 10-digit product category in different

markets, and in particular, export unit values are increasing with distance. We show that a

doubling of distance is associated with about 7.5 per cent increase in average product cate-

gory-level prices. About 5 percentage points from this can be explained by within-firm–pro-

duct differences and about 2 percentage points can be attributed to the composition effect,

that is a different set of firms exports the product to different markets. The within-firm–pro-

duct estimates suggest an economically significant effect, about 15 per cent difference in unit

values between Hungarian products exported to Germany and the United States.

Our results are much in line with the findings of other researchers. To our knowledge,

there are four empirical papers which start from firm–product–destination level price data and

show a positive relationship between distance and export unit values, that is, the same firm

charging different prices for the same product in different markets. Manova and Zhang (2012)

work with Chinese microdata on firm–product–destination level export and import prices. In

addition to finding a positive distance gradient, the results establish a positive link between

This paper is produced as part of the ‘European Firms in a Global Economy: Internal policies for exter-

nal competitiveness (EFIGE)’, a collaborative project funded by the European Commission’s Seventh

Framework Programme (contract number 225551). Murak€

ozy also thanks for the funding of the Hungar-

ian Academy of Sciences for the ‘Firms, Strategy and Performance’ ‘Lend€

ulet’ Grant (LP2013-56). Part

of the research was carried out while Murak€

ozy stayed in Kiel at the Institute for the World Economy.

The authors are grateful to workshop participants at Kiel, Nottingham, Rome and Budapest for helpful

comments on earlier drafts.

©2016 John Wiley & Sons Ltd 1233

The World Economy (2017)

doi: 10.1111/twec.12442

The World Economy