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Why Don't Firms Export More? Product Quality and Colombian Plants

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Author Info
Eileen Brooks
Abstract

Exporting firms around the world ship only a small fraction of their output overseas. For firms in a large country, such as the United States, this behavior can be explained by the existence of a large domestic market. For firms in a small lower income country, such as Colombia, the lower share of exports remains a puzzle. This paper begins by illustrating the failure of current models to explain plant export patterns in Colombia. Even models that do well in describing the US export distribution fail when confronted with the Colombian data. In response to this puzzle, this paper proposes a model in which wealthier individuals produce and consume higher quality products. Predictions of the model are tested on Colombian plant level data from 1981-1991. Overall, product quality is shown to be a significant factor in explaining the tendency for Colombian plants to under-export manufactured goods to the United States.

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File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1036&context=ucscecon
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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number 1036.

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Date of creation: 01 Sep 2003
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Handle: RePEc:cdl:ucscec:1036

Note: oai:cdlib1.org:ucscecon-1036
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Related research
Keywords: International Trade; Exporting; Vertical Differentiation; Colombian Manufacturing; Sunk Costs; Firm Heterogeneity;

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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. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June. [Downloadable!] (restricted)
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  2. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March. [Downloadable!] (restricted)
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September. [Downloadable!]
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  6. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  7. Andrew B. Bernard & Joachim Wagner, 1998. "Export Entry and Exit by German Firms," NBER Working Papers 6538, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May. [Downloadable!] (restricted)
  9. Andrew B. Bernard & J. Bradford Jensen, 2004. "Why Some Firms Export," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 561-569, 04. [Downloadable!] (restricted)
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  10. Jeffrey A. Frankel & Shang-Jin Wei, 1998. "Open Regionalism in a World of Continental Trade Blocs," IMF Working Papers 98/10, International Monetary Fund.
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  11. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December. [Downloadable!] (restricted)
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Cited by:
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  1. Juan Carlos Hallak, 2004. "Product Quality, Linder, and the Direction of Trade," NBER Working Papers 10877, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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