Sector and Importer Determinants of Prices for Traded Intermediates

Bekkers, Eddy; Francois, Joseph; Manchin, Miriam (October 2019). Sector and Importer Determinants of Prices for Traded Intermediates (WTI Working Paper 04/2019). Bern: World Trade Institute

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While the literature on traded goods prices emphasizes final goods prices and related consumer theory to explain variation in goods prices with importer characteristics, trade in intermediates actually constitutes about two-thirds of total trade. We propose a mechanism for explaining variations in the prices of intermediates as a function of importer characteristics, wherein production is vulnerable to failure and the probability of failure declines in the quality of intermediates. Higher wages mean a greater opportunity cost of failure, leading to a stronger demand for high-quality intermediates where firms face higher wages. We find empirical support for this mechanism in the case of intermediate goods using IV regressions. In addition, our findings indicate that while the cost of labor explains about one-fifth of variation in imported intermediate prices, it is a non-significant determinant of imported final good prices.

Item Type:

Working Paper

Division/Institute:

02 Faculty of Law > Department of Economic Law > World Trade Institute
10 Strategic Research Centers > World Trade Institute

UniBE Contributor:

Bekkers, Eddy Henricus; Francois, Joseph and Manchin, Mirjam Judit

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics
300 Social sciences, sociology & anthropology > 380 Commerce, communications & transportation

Series:

WTI Working Paper

Publisher:

World Trade Institute

Language:

English

Submitter:

Pablo Rahul Das

Date Deposited:

28 Feb 2020 09:59

Last Modified:

28 Feb 2020 09:59

BORIS DOI:

10.7892/boris.140831

URI:

https://boris.unibe.ch/id/eprint/140831

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