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Offshoring and Patterns of Quality Growth: Evidence from Danish Apparel

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Author Info

  • Valerie Smeets

    ()
    (Department of Economics and Business, Aarhus University)

  • Sharon Traiberman

    (Princeton University)

  • Frederic Warzynski

    (Department of Economics and Business, Aarhus University)

Abstract

Recently a small empirical literature has taken off attempting to analyze the role that quality plays in our understanding of trade. In particular, the recent work of Khandelwal (2010) has brought the insights of structural IO models of demand to bear into trade data. Our work builds on this new structural literature; we use similar demand estimation techniques on a panel of Danish apparel firms from 1997 to 2010 in order to analyze how firms responded to China’s entry to the WTO and the dismantling of the Multi-Fibre Agreement. We find substantial changes in the aggregate level as the distribution of quality tightens up and import competition appears to spur entry of higher quality firms and exit of lower quality producers. The reduction in trade costs leads to a massive increase in offshoring. The association of offshoring and quality depends on the quality of the sourcing country – while offshoring is generally associated with higher quality, offshoring to China is not. The reductions in trade costs also lead to changes in the distribution of prices and quality-adjusted prices. This has implications for policy as understanding the distribution of prices faced by heterogeneous consumers is key to understand how trade affects consumers along the income distribution.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2013-25.

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Length: 35
Date of creation: 19 Nov 2013
Date of revision:
Handle: RePEc:aah:aarhec:2013-25

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Web page: http://www.econ.au.dk/afn/

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Keywords: quality upgrading; offshoring;

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References

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  1. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  2. Kugler, Maurice & Verhoogen, Eric A., 2009. "The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia," CEPR Discussion Papers 7119, C.E.P.R. Discussion Papers.
  3. Sutton, John, 2012. "Competing in Capabilities: The Globalization Process," OUP Catalogue, Oxford University Press, number 9780199274536, October.
  4. Daniel Yi Xu & Mark Roberts, 2012. "A Structural Model of Dmand, Cost, and Export Market Selection for Chinese Footwear Producers," 2012 Meeting Papers 294, Society for Economic Dynamics.
  5. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  6. Maurice Kugler & Eric Verhoogen, 2009. "Plants and Imported Inputs: New Facts and an Interpretation," American Economic Review, American Economic Association, vol. 99(2), pages 501-07, May.
  7. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
  8. Caplin, A. & Nalebuff, B., 1989. "Aggregation And Imperfect Competition: On The Existence Of Equilibrium," Discussion Papers 1989_30, Columbia University, Department of Economics.
  9. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  10. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
  11. Irene Brambilla & Amit K. Khandelwal & Peter K. Schott, 2010. "China's Experience under the Multi-Fiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Chapters, in: China's Growing Role in World Trade, pages 345-387 National Bureau of Economic Research, Inc.
  12. Daniel Yi Xu & Ana Cecilia Fieler & Marcela Eslava, 2012. "Trade, competition and quality-upgrading: A theory with evidence from Colombia," 2012 Meeting Papers 471, Society for Economic Dynamics.
  13. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, December.
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