Export Destinations and Margins of Trade: Evidence from Pakistan

Using detailed customs data on the universe of import and export transactions from Pakistan, we attempt to empirically relate the variation in unit values of narrowly defined products to export market attributes, such as, market size and distance from the destination country. Although there is a systematic positive effect of market size on f.o.b. unit values, we discover a substantial degree of heterogeneity in the response of within-firm unit values to distance over various categories of exporters. While greater distance is associated with a lower unit price charged by exporters of multiple products as well as those using imported inputs, firms exporting only, with no domestic sales, tend to sell more expensive product varieties to distant markets. We also relate unit value adjustments to the overall volume and value of exports by firms. Our results lend support to the additive trade costs hypothesis à la Hummels and Skiba (2004) as well as within-product heterogeneity in demand elasticities à la Lashkaripour (2019), and the significance of price discrimination effects in determining spatial patterns of export prices. Furthermore, we obtain compelling evidence in favour of asymmetric effects of distance and destination country’s size over sectors.