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The Determinants of Quality Specialization

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  • Jonathan I. Dingel

Abstract

A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy. Fajgelbaum et al. formalize the Linder hypothesis that home demand determines the pattern of specialization and, therefore, predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant, high-income locations export skill-intensive, high-quality products. Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on U.S. manufacturing plants’ shipments and factor inputs to quantify the two mechanisms’ roles in quality specialization across U.S. cities. Home-market demand explains as much of the relationship between income and quality as differences in factor usage.

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  • Jonathan I. Dingel, 2017. "The Determinants of Quality Specialization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1551-1582.
    • Handle: RePEc:oup:restud:v:84:y:2017:i:4:p:1551-1582.
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    File URL: http://hdl.handle.net/10.1093/restud/rdw054
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    Keywords

    Quality specialization; Product quality; Market access; Home-market effect;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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