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The pricing of manufactured goods during trade liberalization : evidence from Chile, Israel, and Korea (English)

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  • The pricing of manufactured goods during trade liberalization : evidence from Chile, Israel, and Korea (English)
  • McNelis, Paul D.; Corbo, Vittorio
  • World Bank (WB)


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Title The pricing of manufactured goods during trade liberalization : evidence from Chile, Israel, and Korea (English)
Similar Titles
Material Type Reports
Author(English)

McNelis, Paul D.; Corbo, Vittorio

Publisher

World Bank (WB)

Date 1987
Language English
File Type Link
Subject Social Development < Education

Abstract

This paper is an investigation of price-setting behavior in Chile, Israel and Korea when each of these countries moved from a fairly closed to a more open international trade regime. In some cases, the intensification of the opening resulted from real appreciation rather than from a formal adjustment in tariff rates (as in Chile, 1980-82, and Israel, 1983-84). The central thesis of this paper is that the structural price equation for import-competing manufactured goods changes with the degree of openness to trade. When the economy is fairly closed, the main weight is commanded by domestic cost variables and excess demand, and foreign prices only affect pricing through their effects on imported material prices. During trade liberalization the rate of change of prices of an increasing proportion of manufacturing goods begins to be influenced by the landed cost of similar imports, but domestic variables still have a role because selected domestic manufactured goods are considered imperfect substitutes for internationally traded products. Empirical results from time-varying parameter estimation show that domestic currency prices of imports become progressively more important during the liberalization processes in the three countries.