Raphael Anton Auer
Globalization and Governance Fellow, Princeton University
Economist, Swiss National Bank
Research Interests
International Trade, International Macroeconomics
Economic Growth, Macroeconomics
Papers
Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption
Starting with Krugman (1980), much literature has analyzed how trade liberalization affects the economy based on the notion that trade is motivated by consumer's love of variety. In this paper, I augment these preferences by the determinants of demand for heterogeneous products. The model features products with heterogeneous attributes and consumers with heterogeneous tastes for attributes. Allowing for international trade, the model predicts a within-industry home market effect, i.e., that high domestic demand for an attribute leads to entry of firms producing a fitting output and, consequently, net exports of such products. Second, the model predicts that consumption is home-biased immediately after liberalization since each industry is optimized for the preferences of domestic consumers and its output does not match well with export market preferences. Third, in the long run, countries specialize further and the within-industry home market effect intensifies. Intriguingly, as long as it is incomplete, specialization implies that the consumption home bias disappears completely and also, that the gains from trade occur to all consumers in the same proportion irrespective of the composition of imports. Last, I examine some of these predictions in a panel of the European car industry.
The Effect of Low-Wage Import Competition on US Inflationary Pressure (w. Andreas Fischer; accepted subject to revisions at the Journal of Monetary Economics)
Featured by The Economist, Dani Rodrik’s Weblog, The American and WSJ.com.
We estimate the effect of import competition from low-wage countries on US inflationary pressure using a new methodology that identifies the causal response of prices to comparative advantage-induced supply shocks in these nations. In a panel covering 325 manufacturing industries from 1997 to 2006, we find that imports from nine low-wage countries are associated with strong downward pressure on prices. When these nations capture 1% US market share, the sector’s producer prices decrease by 2.35%. In the aggregate, these relative price shocks are equivalent to a 0.5 annual percentage point downward impulse on US producer prices. Because import competition also influenced the skewness of the distribution of price changes, it is likely to have impacted US equilibrium inflation.
Spatial Competition In Quality (w. Philip Saure)
The well-studied formalism of Hotelling's classic location paradigm does not apply to the case of good quality, which by its very definition requires that all individuals agree on the ranking of goods; therefore, the notion that goods are differentiated by a 'transportation cost' is inept in vertically differentiated markets. Motivated by this observation, we analyze the determinants of product differentiation in a general equilibrium model of monopolistic competition in good quality. The model features many firms, which each hold the monopoly to produce a unique quality level of an otherwise homogenous good, as well as consumers who are heterogeneous in their valuation for quality. We document that the analogue to the transportation cost in the Hotelling model arises if the marginal cost of production is convex with respect to quality. A firm's optimal price depends on the latter convexity and on the prices of the competitors that are adjacent in the quality space. For given firm entry, average equilibrium markups are decreasing in the density of quality-competition, but are unaffected by average productivity. Endogenizing firm's entry decision, we demonstrate that the density of competition is increasing in the market size and decreasing in average productivity. Last, we apply these insights to analyze the effect of inter- and intra-industry trade on the toughness of quality-competition, firm entry and welfare.
We develop a model of quality pricing and international trade. Firms sell goods of heterogeneous quality to consumers that differ in their willingness to pay for quality. In equilibrium, the market power of a given firm depends on the prices and qualities of its closest competitors more than on prices of further away firms. Mark-ups therefore depend mostly on market conditions in the vicinity of a firm’s quality. We test the static and dynamic predictions of this simple model in the European car market. In this specific market, low quality cars are more likely to be exported than high quality cars. Competition abroad is stronger for low quality cars, leading to low export prices in the low quality segment. We also and that exchange rate pass-through is larger for low quality cars, as a large fraction of the competitors of low quality exporters are other low quality exporters that face the same exchange rate shocks.
Geography, Institutions, and the Making of Comparative
Development
While the direct impact of geographic endowments on prosperity is present in all countries, in former colonies, geography has also affected colonization policies and, therefore, institutional outcomes. Using non-colonized countries as a control group, I develop an empirical strategy that disentangles the partial effects of institutions and of endowments on income. I find that institutions are the main determinant of development, but that endowments have a sizeable direct impact, as well. Last, I apply the empirical strategy to examine the theories put forward by La Porta et al. (1999) and by Acemoglu et al. (2001), finding support for both theories, but also evidence that the authors’ estimates are mildly biased since they mix up the effect of the historical determinants of institutions with the sizeable direct impact of access to trade and of disease environment.
More Academic Papers and Policy work here
Publications
Exchange Rate Pass-Through in a Competitive
Model of Pricing-to-Market (w. Thomas Chaney)
Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 151-175, 02
This paper extends the Mussa and Rosen (1978) model of quality-pricing under perfect competition. Exporters sell goods of different qualities to consumers who have heterogeneous preferences for quality. Production is subject to decreasing returns to scale and, therefore, supply and the toughness of competition react to cost changes brought about by exchange rate fluctuations. First, we predict that exchange rate shocks are imperfectly passed through into prices. Second, prices of low quality goods are more sensitive to exchange rate shocks than prices of high quality goods. Third, in response to an exchange rate appreciation, the composition of exports shifts towards higher quality and more expensive goods. We test these predictions using highly disaggregated price and quantity U.S. import data. We find evidence that in response to an exchange rate appreciation, the composition of exports shifts towards high unit price goods. Therefore, exchange rate pass-through rates that are measured using aggregate data will tend to overstate the actual extent of pass-through.