A second estimate of the markup has been made by the Hong Kong Census and Statistics Department, based on a survey of exporters. These markups are also expressed as a percentage of the re-export value, and are shown in the second column of Table 2. It can be seen that the markups reported by the Hong Kong survey is less than that estimated in the interagency report. This is no coincidence, but reflects underlying differences in the methodology used to estimate the markup. To explain these differences, we use the example illustrated in Figure 1.
Consider a product that is shipped from China to Hong Kong, and from there is reexported to the United States and other locations. Suppose that the unit-value of this item when it arrives in Hong Kong is $1.00. This unit-value is the average over all units sent to Hong Kong, regardless of their final destination. It should be stressed that the “overall” unit-value of this type is all that is available in the actual Hong Kong import data. Because imports are collected by source country, but not by eventual destination, it is impossible to distinguish the unit-value of imports destined for the U.S. from those destined for elsewhere. It is precisely this limitation of the Hong Kong data that makes estimation of the markup difficult. To illustrate this, suppose that the goods destined for the U.S. are of higher quality, and have a unit-value of $1.10, while those destined for the rest of the world have a unit-value of $0.90: these unit-values are not observed in the Hong Kong data, however. Then to estimate the markup, one approach is to compare the “overall” unit-value of the Hong Kong imports from China ($1.00) with the unit-value of the Hong Kong re-exports from China to the U.S. ($1.50). This gives a markup of $0.50, or 33% when expressed relative to the re-export value of $1.50.
This calculation is labeled as Method A in Figure 1, and corresponds precisely to the calculation performed by the interagency Report, as shown in the first column of Table 2. That report computed the markup by comparing the “overall” unit-value of Hong Kong imports from China, to the unit-value of Hong Kong re-exports from China to the United States. We have made exactly the same calculation for a wider range of years, using the Hong Kong import and re-export data, and these results are reported in the third column of Table 2. We see that the markups range from 26.9% to 31.5% over 1988-1995.7 It is evident that this method will overstate the “true” markup if the Hong Kong imports from China that are destined for the United States are, on average, priced higher than those destined for other markets. In that case, the “overall” unit-value of Hong Kong imports from China is too low, so the markup obtained is to too high. To correct for this overstatement, we can consider an alternative calculation of the markup, which is labeled as Method В in Figure 1. Electronic Payday Loans Online
Method В compares the “overall” unit-value of Hong Kong import from China ($1.00) with the “overall” unit-value of Hong Kong re-exports from China to the world ($1.30). Note that both the goods entering Hong Kong and those leaving can be destined for any final market, so in this sense, the calculation is consistent. If the goods re-exported to the rest of the world are priced lower than those going to the United States, then this method gives an estimate of the markup that is less than that from Method A. For the values in Figure 1, Method В give a markup of $0.30, or 23% when expressed relative to the re-export value of $1.30. It turns out that Method В corresponds to the question that the Hong Kong Census asked exporters in their survey: namely, what is the average markup on all goods imported from China and re-exported (to anywhere in the world)? We have made this calculation using the Hong Kong data, resulting in the values shown in column four of Table 2. We find that Method В gives an estimated markup ranging from 19.6% to 23.4% over 1988-1995, which is less than that obtained from Method A in every year. Thus, the difference between the interagency estimates and those from the Hong Kong Census shows up equally well in our own estimates of the markups from Methods A and Method B.