Pinelopi Koujianou Goldberg

Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry

This paper develops and estimates a model of the U.S. automobile industry. On the demand side, a discrete choice model is adopted, which is estimated using micro data from the Consumer Expenditure Survey. The estimation results are used in conjunction with population weights to derive aggregate demand. On the supply side, the automobile industry is modeled as an oligopoly with product differentiation. Equilibrium is characterized by the first-order conditions of the profit-maximizing firms. The estimation results are used in counterfactual simulations to investigate two trade policy issues: the effects of the voluntary export restraint, and exchange rate pass-through. Copyright 1995 by The Econometric Society.

The Response of the Informal Sector to Trade Liberalization

This paper studies the relationship between trade liberalization and informality. It is often claimed that increased foreign competition in developing countries leads to an expansion of the informal sector, defined as the sector that does not comply with labor market legislation. Using data from two countries that experienced large trade barrier reductions in the 1980s and 1990s, Brazil and Colombia, we examine the response of the informal sector to liberalization. In Brazil, we find no evidence of a relationship between trade policy and informality. In Colombia, we do find evidence of such a relationship, but only for the period preceding a major labor market reform that increased the flexibility of the Colombian labor market. These results point to the significance of labor market institutions in assessing the effects of trade policy on the labor market.

Multi-product Firms and Product Turnover in the Developing World: Evidence from India

This paper provides evidence on the patterns of multiproduct firm production in a large developing country, India, during a period that spans market reforms. In the cross-section, multiproduct firms in India look remarkably similar to their U.S. counterparts. The time-series patterns, however, exhibit important differences. In contrast to evidence from the United States, product churning, particularly product rationalization, is far less common in India. We find no link between product rationalization and output tariff declines following Indias 1991 trade liberalization. The lack of creative destruction is consistent with the role of industrial regulation in preventing an efficient allocation of resources.

Dealer Price Discrimination in New Car Purchases: Evidence from the Consumer Expenditure Survey

This paper documents the variation in dealer discounts for new cars using transactions price data from the Consumer Expenditure Survey. Consumer-specific characteristics fail to explain dealer discounts, whereas model, market-specific, and purchase transaction variables (e.g., first-time purchase, trade-in, and financing through dealer) do explain them. The results contradict earlier findings of race and gender discrimination based on a controlled experiment. This contradiction is reconciled by examining the higher moments of the empirical discount distribution; while mean and median markups do not vary by race and gender, minority purchases are characterized by higher dispersion. This may rationalize the disparate treatment of minorities by dealers documented in the controlled experiment.

Credit Constraints in the Market for Consumer Durables: Evidence from Micro Data on Car Loans

We investigate the significance of borrowing constraints in the market for consumer loans. Using data from the Consumer Expenditure Survey on auto loan contracts we estimate the elasticities of loan demand with respect to interest rate and maturity. We find that, with the exception of high income households, consumers are very responsive to maturity and less responsive to interest rate changes. Both elasticities vary with household income, with the maturity elasticity decreasing and the interest rate elasticity increasing with income. We argue that these results are consistent with the presence of binding credit constraints in the auto loan market.

Trade, Inequality, and Poverty: What Do We Know?

The relationship between globalization and inequality or poverty has received considerable attention in recent years. The number of literature reviews alone is now so large that a review of literature reviews would seem appropriate. There are some common themes that emerge from this literature: —Globalization is a catchall term that is used to describe phenomena as diverse as trade liberalization, outsourcing, increased immigration flows, removal of capital controls, cultural globalization, and generally faster transmission of international shocks and trends. —Operational definitions of both inequality and poverty are associated with substantial conceptual and measurement problems. —The evidence on the relationship between globalization and income inequality or poverty is mixed, and related empirical findings are subject to varying interpretations. Given this state of affairs, we want to clarify how the focus of this study differs from previous surveys. Our primary goal is to cover those aspects of the relationship between globalization and income inequality and poverty that we have more hope of pinning down empirically. Accordingly, we concentrate on recent trade liberalization episodes in developing countries (especially Latin America) that consisted primarily of drastic reductions in tariff barriers. As we argue below, such tariff reductions provide fairly accurate measures of the mag-

Strategic Export Promotion in the Absence of Government Precommitment

Arguments in favor of a strategic trade policy are based on the assumption that the government can credibly precommit to a policy that will not be altered, even if it is suboptimal ex post. This paper examines the implications of relaxing this assumption; to this end, a three-stage game is considered that accounts for the sunk costs associated with capacity installment. It is found that--contrary to common belief--the time-consistent optimal subsidy level is positive, though generally lower than the optimal level with precommitment. This somewhat counterintuitive result is driven by the commitment value of capacity. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

How Rigid are Producer Prices

Conventional wisdom suggests that producer prices are more rigid than consumer prices and therefore play less of a role in the allocation of goods and services. Analyzing 1987-2008 microdata collected by the U.S. Bureau of Labor Statistics for the producer price index, we find that producer prices for finished goods and services in fact exhibit roughly the same rigidity as consumer prices that include sales and substantially less rigidity than consumer prices that exclude them. Moreover, large firms change prices two to three times more frequently than small firms do, and by smaller amounts, particularly in the case of price decreases. Longer price durations are associated with larger price changes, although there is considerable heterogeneity in this relationship. Long-term contracts are associated with somewhat greater price rigidity for goods and services, although the differences are not dramatic. The size of price decreases plays a key role in inflation dynamics, while the size of price increases does not. The frequencies of price increases and decreases tend to move together and so cancel one another out.

Trade Liberalization and Labor Market Adjustment in Brazil

We study the impact of the 1988-1994 trade liberalization in Brazil on the wage distribution. We explore three main channels through which trade liberalization could have affected the wage distribution: increasing returns to skilled workers due to Hecksher-Ohlin adjustments to trade policy, trade induced skill-biased technological change, and changes in industry wage premiums. Our results suggest the trade reform in Brazil did partially contribute to the growing skill premium through skill-biased technological change, which was partially instigated by the increased foreign competition. We also find that sector specific returns to skill increased by more in sectors with bigger tariff reductions. However, we find little support for Hecksher-Ohlin type adjustments to trade reform. Overall, the effects of trade reforms on wage inequality seem relatively small.

The effects of extending intellectual property rights protection to developing countries: A case study of the Indian pharmaceutical market

Under the TRIPS agreement, WTOmembers are required to enforce product patents for pharmaceuticals. The debate about the merits of this requirement has been and continues to be extremely contentious. Many poor developing economies claim that patent protection for pharmaceuticals will result in substantially higher prices for medicines, with adverse consequences for the health and well-being of their citizens. On the other hand, research-based global pharmaceutical companies, which claim to have lost billions of dollars because of patent infringement, argue that prices are unlikely to rise significantly because most patented products have therapeutic substitutes. In this paper we empirically investigate the basis of these claims. Central to the ongoing debate is the structure of demand for pharmaceuticals in poor economies where, because health insurance coverage is so rare, almost all medical expense are met out-of-pocket. Using a product-level data set from India, which is unique in terms of its detail and coverage, we estimate key price and expenditure elasticities and supply-side parameters for the fluoroquinolones sub-segment of the systemic anti-bacterials (i.e., antibiotics) segment of the Indian pharmaceuticals market. We then use these estimates to carry out counterfactual simulations of what prices, profits (of both domestic firms and multinational subsidiaries) and consumer welfare would have been, had the fluoroquinolone molecules we study been under patent in India as they were in the U.S. at the time. Our results suggest that concerns about the potential adverse welfare effects of TRIPS may have some basis. We estimate that in the absence of any price regulation or compulsory licensing, the total annual welfare losses to the Indian economy from the withdrawal of the four domestic product groups in the fluoroquinolone sub-segment would be on the order of U.S.