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Recent QED Working Papers

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#1529.

Christopher Cotton, Daniel Teeter

Breaking Down Canada’s Internal Trade Barriers

This paper provides an overview of Canada’s internal trade barriers that limit cross-province trade and competition. It summarizes the different types of barriers, how costly they are for consumers and the economy, recent efforts to reduce them, and why they persist. It then summarizes 22 reforms and investments that could be undertaken by Canadian provincial and federal governments to break down the barriers. The paper classifies these reforms into four categories and presents several strategies for incentivizing reform.

#1525.

Alex Chernoff, Allen Head, Beverly Lapham

Markups, Pass-Through, and Firm Heterogeneity with Sequentially Mixed Search

We study the determination of market power at the firm and industry levels when heterogeneous firms compete for sales to ex ante homogeneous buyers in a market with both directed and random search and free entry of firms that differ in productivity. Search and the distribution of productivity across active firms generate distributions of equilibrium prices and markups that we relate to variation in the elasticity of demand at the firm level. With directed search at the outset, a shock that raises the matching rate for buyers improves conditions for them and tends to lower markups. Random…

#1524.

Alper Arslan, Robert Clark, Qidi Hu

Auctions vs Negotiations under Corruption: Evidence from Land Sales in China

This study investigates whether corruption differentially affects contracting through auctions and negotiations. Using data on Chinese land-market transactions, where corruption is known to be present, we first show that, on average, it exerts similar effects on transactions carried out via auctions and negotiation. However, this finding masks important heterogeneity – auctions
featuring healthy competition are less affected by corruption, and significantly less so than negotiation. We then develop a simple model of bidding under the possibility of corruption that rationalizes our…

#1523.

Alex Chernoff, Allen Head, Beverly Lapham

Consumer Search, Productivity Heterogeneity, Prices, Markups, and Pass-through: Theory and Estimation

We develop and estimate a search model in which identical consumers trade with price-setting firms that differ in productivity. In the model, equilibrium distributions of both prices and markups are non-degenerate and continuous with a firm's price decreasing in its productivity. Variation in the markup across firms is more complicated and depends on both the search process and the distribution of productivity. The model parameters governing each of these are estimated using firm-level data on retail industries in Canada. We use the estimated model to characterize the qualitative and…

#1522.

Daniel Teeter

The Impact of Internal Trade Liberalizations on Plant Productivity and Markups

I estimate the effects of two Canadian internal trade liberalizations on plant-level productivity, markups, and exports. In particular, I examine the New West Partnership and Trade Agreement (NWPTA) and the Trade and Cooperation Agreement (TCA), both of which sought to reduce or remove prohibitive, technical and administrative barriers to trade across provinces. Employing a control function approach, I use Canadian manufacturing data to estimate plant-level total factor productivity and markups for 2004-2012. Then, using difference-in-differences methods, I find that the NWPTA increased…

#1521.

Mehmet Nazif, Glenn Jenkins

Evaluation of the Economic Welfare Gains from Reducing Trade Administration Costs in Mercosur

This paper evaluates the potential welfare gains in the Mercosur region of South America as a benefit of improvement to the trade administrations. Improvements to border procedures and processes leading to border procedures can save billions of dollars for the region, create markets for exporters and…

#1520.

Justin Quinton, Glenn Jenkins, Godwin Olasehinde-Williams

How Do Household Coping Strategies Evolve with Increased Food Insecurity? An Examination of Nigeria’s Food Price Shock of 2015-2018

Faced with a significant devaluation of its currency and a surge in food prices, the Nigerian government prohibited the use of foreign currency for food imports. This essentially blocked the importation of numerous food items under the guise of stimulating domestic output of these staples. Consequently, food prices in Nigeria increased despite a global decline in food prices, and the incidence and severity of food insecurity escalated. This study examines the changes in the types and severity of coping mechanisms for food insecurity resulting from the food price shock caused by the oil…

#1519.

Nahim Bin Zahur, Lucy Xiaolu Wang

Procurement Institutions and Essential Drug Supply in Low and Middle-Income Countries

International procurement institutions play an important role in drug supply. We study price, delivery, and procurement lead time of drugs for major infectious diseases (antiretrovirals, antimalarials, antituberculosis, and antibiotics) in 106 developing countries from 2007-2017 across procurement institution types. We find that pooled procurement lowers prices: pooling internationally is most effective for small buyers and concentrated markets, while pooling within-country is most effective for large buyers and unconcentrated markets. Pooling can reduce delays, but at the cost of longer…

#1518.

Nahim Bin Zahur

Long-term contracts and efficiency in the liquefied natural gas industry

In many capital-intensive markets, sellers sign long-term contracts with buyers before committing to sunk cost investments. Ex-ante contracts mitigate the risk of under-investment arising from ex-post bargaining. However, contractual rigidities reduce the ability of firms to respond flexibly to demand shocks. This paper provides an empirical analysis of this trade-off, focusing on the liquefied natural gas (LNG) industry, where long-term contracts account for over 70% of trade. I develop a model of contracting, investment and spot trade that incorporates bargaining frictions and…