THE EFFECT OF EXCHANGE RATES ON INTERNATIONAL MARKETING MARGINS

Abstract

This study presents a new structural model that incorporates price linkage and marketing margin identity into a common framework. The inclusion of exchange rates expands the framework to include goods traded in different currencies. This allows empirical estimates to be made of how changes in domestic prices, exchange rates and middlemen costs are transmitted to foreign prices and the international marketing margin. The framework is empirically applied to an international marketing channel using farmed salmon data, to investigate how Norwegian export prices, exchange rates and middlemen costs affect French wholesale prices and the marketing margin. Results suggest that the markets are, via complete price and exchange rate pass through, purely competitive and that the marketing margin only increases when costs of marketing service increase.