Benjamin R. Mandel

Heterogeneous firms and import quality: evidence from transaction-level prices

A key emerging insight in international economics is that the scope for quality differentiation can help to explain patterns in export prices at the level of products or firms. In this paper, a unified theoretical framework of firm heterogeneity in cost and quality is brought to bear on an expansive data set of U.S. import transaction prices collected by the Bureau of Labor Statistics (BLS). The higher moments of the price distribution are used to identify the scope for quality differentiation at the detailed product level; highly differentiated products account for about half of U.S. import value. The product classification is then used to evaluate two claims in the nascent firm-level trade quality literature. First, the positive link between exporter capability and price is found to depend on the nature of the product: productive exporters simultaneously specialize in high-priced varieties in quality differentiated goods and low-priced varieties in more homogeneous goods. Second, a novel time series test documents firm sorting into export markets according to output quality.

Offshoring Bias in U.S. Manufacturing: Implications for Productivity and Value Added

The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth--a fact reconciled by the notable gains in manufacturing productivity. We maintain, however, that the dramatic acceleration of imports from developing countries has imparted a significant bias to the official statistics. In particular, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in input cost and import price indexes. Although cost savings are a primary driver of the shift in sourcing to foreign suppliers, the price declines associated with offshoring are not systematically observed; this is the essence of the measurement problem. To gauge the magnitude of these discounts, we draw on a variety of evidence from import price microdata from the Bureau of Labor Statistics, industry case studies, and the business press. To assess the implications of offshoring bias for manufacturing productivity and value added, we implement the bias correction developed by Diewert and Nakamura (2009) to the input price index in a growth accounting framework, using a variety of assumptions about the magnitude of the discounts from offshoring. We find that from 1997 to 2007 average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point. Furthermore, although the bias from offshoring represents a relatively small share of real value added growth in the computer and electronic products industry, it may have accounted for a fifth to a half of the growth in real value added in the rest of manufacturing.

Crime, House Prices, and Inequality: The Effect of UPPs in Rio

We use a recent policy experiment in Rio de Janeiro, the installation of permanent police stations in low-income communities (or favelas), to quantify the relationship between a reduction in crime and the change in the prices of nearby residential real estate. Using a novel data set of detailed property prices from an online classifieds website, we find that the new police stations (called UPPs) had a substantial effect on the trajectory of property values and certain crime statistics since the beginning of the program in late 2008. We also find that the extent of inequality among residential prices decreased as a result of the policy. Both of these empirical observations are consistent with a dynamic model of property value in which historical crime rates have persistent effects on the price of real estate.

Chinese Exports and U.S. Import Prices

This paper develops a technique to decompose price distributions into contributions from markups and marginal cost. The estimators are then used as a laboratory to measure the relationship between increasing Chinese competition and the components of U.S. import prices. The estimates suggest that the intensification of Chinese exports in the 2000s corresponded to substantial changes in the distributions of both the markups and marginal cost of U.S. imports. The entry of a Chinese exporter in an industry corresponded to rest-of-world exporters shrinking their markup (lowering prices by up to 30 percent) and increasing their marginal cost (raising prices by up to 50 percent). The fact that marginal cost increased as competition stiffened strongly suggests that the composition of non-Chinese exports shifted toward higher-quality varieties. The estimates also imply a pattern in the acquisition of market share by Chinese exporters: They enter at relatively low cost/quality and then subsequently undertake quality improvements and markup reductions. These results provide some of the first measures of the dual nature of trade’s procompetitive effects; exporters respond to tougher competition by simultaneously adjusting both markups and quality.

The Hitchhiker’s Guide to Missing Import Price Changes and Pass-Through

A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics microdata, we derive empirical bounds on the magnitude of these biases and construct alternative price indexes that are less subject to selection effects. Our analysis suggests that the biases induced by selective exits and entries do not materially alter the literature’s view that pass-through to U.S. import prices is low over the short- to medium-term horizons that are most useful for both forecasting and differentiating among economic models.

Why is the U.S. Share of World Merchandise Exports Shrinking

As the U.S. share of the world goods trade slips from its level in the 1980s and 1990s, concerns have arisen that the productivity of U.S. exporters has not been growing as fast as that of foreign firms selling similar products. However, an analysis of industry-level trade data suggests that two other factors explain much of the drop in export share: the changing composition of the products traded internationally and the diminished share of U.S. GDP in global output. Declining relative productivity may have played a role in the early 2000s, but it has not been a large factor across industries over the longer term. Overall, there is little evidence of a broad-based decline in the nation’s ability to compete in global markets.

Going Global: Markups and Product Quality in the Chinese Art Market

We analyze two reasons for export prices to be different across markets ? namely, quality differentiation and variable markups ? and attempt to parse their relative importance and some of their underlying drivers. To overcome the substantial measurement issues in this task, we consider a particular industry as a special case: Chinese fine art. The simplicity of the supply-side of art vis--vis marginal cost and the wealth of data on its quality characteristics make it possible to separately identify the markup and quality components of international relative prices for Chinese artwork. Through this lens, we trace the process of growth and internationalization of Chinese art since the year 2000 and uncover a rich set of facts. We find strong support for quality sorting into international markets at both the level of artist and artwork, as well as substantial markup differences across destinations. Using a structural model of endogenous quality choice by Feenstra and Romalis (2012), we argue that much of the international quality premium is driven by specific distribution costs (whether physical or informational), rather than destination-specific preferences for quality.

Chapter 10 - Investment in Visual Art: Evidence from International Transactions

Abstract This study uses international trade data to discern whether fine art is, on average, more an investment or a consumption good. Using a battery of novel measures, the chapter demonstrates that the flows of services embodied by visual artworks most closely resemble consumption services. A stylized prediction of the permanent income hypothesis is that consumption demand increases with rises in permanent income and the demand for investment increases with rises in temporary income. We find that international shipments of art are strongly correlated with trade in consumer goods, with the income of destination countries, and specifically with the permanent component of income changes. In contrast, there is little indication that art demand responds to temporary income shocks or that it even moves in tandem with other investments, implying that the investment motive for purchasing art is relatively weak.