What Determines Exports of Luxury Products? The Case of Cognac

The objective of this paper is to analyze the determinants of Cognac brandy exports. After describing the building of a unique database concerning Cognac shipments in volume and value terms to almost 120 destinations between 1967 and 2013, we use this database to construct descriptive statistics concerning the evolution of Cognac exports during nearly half a century. This database points out a decrease in the extensive margin of trade while the intensive margin has more than doubled in 46 years in volume. We also construct a database on protectionism affecting the worldwide exports of Cognac: it reveals the proliferation of prohibitions and of high specific tariffs, resulting in a highly taxed product throughout the world. We analyze the determinants of Cognac exports and base our empirical strategy on a two-step procedure with first a linear probability model to estimate the extensive margin, second Ordinary Least Squares to estimate the intensive margin of trade. Beyond results in line with the gravity literature, our most interesting conclusions are: (i) in many estimations, the extensive (respectively intensive) margin of trade is positively (respectively negatively) correlated with an appreciation of the Euro; (ii) like other luxury products, the elasticity of exports of Cognac to distance is negative, significant and relatively small while the elasticity to GDP is positive, significant and relatively large; (iii) all covariates have the expected impact on exports of Cognac except average custom duty on the intensive margin of trade. We discuss this last result and offer two potential explanations, a Veblen effect and an endogeneity of custom duty.

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 Record created 2017-04-01, last modified 2018-01-23

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