Multi-Destinations Firms Responses to Non-Tariff Barriers to Imports : Evidence from Non-Automatic Import Licenses in Argentina

We study the consequences of non-tariff barriers to imports on firms' behavior in export markets. We exploit the timing in which several inputs entered a system of non-automatic import licenses (NAILs) that was implemented in Argentina to study the consequences of the policy on the behavior of multi-destination exporters. We develop a trade model with variable markups and propose a methodology that lets us identify the differential price responses of a given firm across its destinations and how this response depends on the firm's market power in the destination. On the empirical side, we use a comprehensive dataset of Argentinian firms and exploit variability in the timing in which different inputs were added to the NAILs system. Not surprisingly, NAILs reduce imports for those firms that are more exposed to the policy. This, in turn, yields to a considerable decline in their exports. We then focus on the responses of multi-destination exporters across their destinations to uncover a novel fact: for a given firm, in a given year, the negative effect of rising import costs on exports is more prominent in markets where the firm is smaller relative to other firms in the same sector. In light of our theoretical model, this implies that the elasticity of markup for a multi-destination exporter is increasing on its market power in the destination market. Intuitively, a multi-destination exporter decides to adjust its markups relatively more (and less their prices and export revenues) in those markets where it has higher market power