Hence, our preferred value for the markups are those shown in the last columns of Table 4 (omitting all observations with QRATIO>l). In the Appendix, we also report the markups obtained on eastbound trade when outlying observation are excluded. These are generally higher than those reported in Table 2, indicating that even our preferred estimates in Table 2 (i.e. method C), may be an underestimate of the “true” markup.
The final columns of Table 4 indicate a decline in the markup over time. This decline could be partly due to more competition among traders in the re-sale of goods to China, and partly to due to exchange rate movements during this period. In particular, there is a very large fall in the markup from 20 percent in 1987 to 8 percent in 1988, which occurs simultaneously with an large percent depreciation of the Chinese Yuan against the U.S. dollar. This is illustrated in Figure 2, where we plot the markups from Methods A and В (from Table 5, deleting observation with QRATI0>1) and the exchange rate between the Chinese yuan and the U.S. dollar.14 If many Hong Kong companies had signed yuan-denominated contracts in 1987 to deliver U.S.-made goods to China, then the large unexpected depreciation of the yuan against the U.S. dollar would naturally reduce the markup on re-exports. While contracts may explain the 1987-88 drop in the markup, it is surprising that the fall in the markup has apparently been permanent. payday loans online direct lenders only