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Quality Sorting And Trade: Firm-Level Evidence For French Wine

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Author Info
Crozet, Matthieu
Head, Keith
Mayer, Thierry

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Abstract

Quality sorting and trade: Firm-level evidence for French wine Investigations of the effect of quality differences on heterogeneous performance in exporting have been limited by lack of direct measures of quality. We examine exports of French wine, matching the exporting firms to producer ratings from two wine guides. We show that high quality producers export to more markets, charge higher prices, and sell more in each market. More attractive markets are served by exporters that, on average, make lower rated Champagne. Market attractiveness has a weakly negative effect on prices and a strongly positive effect on quantities, confirming the sign predictions of a simple quality sorting model. Methodologically, we make several contributions to the literature. First, we propose an estimation method for regressions of firm-level exports on ability measures and use Monte Carlo simulations to show that it corrects a severe selection bias present in OLS estimates. Second, we show how the means of quality, price, and quantity for exporters to a given market can be used to recover estimates of core parameters (which we compare with firm-level estimates) and discriminate between productivity and quality-sorting versions of the Melitz model. Our new method regresses country means on an index of each country's attractiveness and the fixed costs of entering it. We compare our method, which utilizes explanatory variables estimated in the firm-level regressions, to the conventional approach that relies on a reduced-form relationship with proxies for attractiveness and fixed costs.

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Paper provided by American Association of Wine Economists in its series Working Papers with number 53883.

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Date of creation: Jul 2009
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Handle: RePEc:ags:aawewp:53883

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Related research
Keywords: Industrial Organization; F12;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
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  2. Richard E. Baldwin & Tadashi Ito, 2008. "Quality competition versus price competition goods: An empirical classification," NBER Working Papers 14305, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  4. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 441-487, 05. [Downloadable!] (restricted)
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  5. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March. [Downloadable!]
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  6. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Eaton, Jonathan & Kortum, Samuel, 2001. "Trade in capital goods," European Economic Review, Elsevier, vol. 45(7), pages 1195-1235. [Downloadable!] (restricted)
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  8. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February. [Downloadable!] (restricted)
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  9. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
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  10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  11. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September. [Downloadable!]
  12. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March. [Downloadable!]
  14. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January. [Downloadable!] (restricted)
  15. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June. [Downloadable!]
  16. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Blackwell Publishing, vol. 75(1), pages 295-316, 01. [Downloadable!] (restricted)
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  17. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2008. "An Anatomy of International Trade: Evidence from French Firms," NBER Working Papers 14610, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Maurice Kugler & Eric Verhoogen, 2008. "The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia," NBER Working Papers 14418, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pamina Koenig & Florian Mayneris & Sandra Poncet, 2009. "Local export spillovers in France," PSE Working Papers 2009-03, PSE (Ecole normale supérieure). [Downloadable!]
  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. [Downloadable!] (restricted)
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  3. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," NBER Working Papers 14928, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-26.

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