GRAVITY MEETS PRICING TO MARKET: WHAT A COMBINEDMETHOD APPROACH TELLS US ON GERMAN BEER EXPORTS
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Gravity and pricing to market (PTM) models have been used to elaborate determinants of bilateral trade and export pricing for different countries and branches. Typically, only one of the two methods was chosen. We show in a stepwise approach that a combination of both methods yields novel results on the determinants of exports and export pricing behaviour. For the case of German beer exports, we show that structural differences exist between markets on which exporters apply either PTM or non-PTM strategies. German beer exporters apply PTM strategies, in particular local-currency stabilization, on those markets where imports are very sensitive to exchange-rate changes. Non-PTM strategies, i.e. full exchange-rate transmission, occur on export markets with insensitive reactions. Apart from PTM strategies, German beer exports are strongly dependent on policy variables such as the introduction of the Euro and the partner country’s membership in the EU.