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Entry into Export Markets and Product Quality Differences

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  • Roberto Álvarez; J.
  • Rodrigo Fuentes

Abstract

Using a rich dataset of Chilean exporters, we analyze several issues related to the relationship between entry into export markets and product quality. We find that every year a large number of new exporting relationships are initiated, with either new firms or existent ones that begin exporting, but the survival rate of these entries is very low and declines over time. Using unit values as a proxy for product quality, our estimations show that entry is generally associated with higher product quality. This higher product quality, however, tends to decline over time and eventually disappears three years after entry. To better identify this effect, we explore whether there are systematic differences across sectors. As expected, for sectors in which quality differentiation may be important, our findings reveal that reference-price and differentiated products show a higher price in the year of entry and it takes longer to converge to the incumbent prices. These results hold after controlling for potential sample selection bias.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 536.

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Date of creation: Dec 2009
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Handle: RePEc:chb:bcchwp:536

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  1. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  2. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  3. Mick Silver, 2007. "Do Unit Value Export, Import, and Terms of Trade Indices Represent or Misrepresent Price Indices?," IMF Working Papers 07/121, International Monetary Fund.
  4. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  5. Tibor Besedes & Thomas Prusa, 2006. "Ins, outs, and the duration of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 266-295, February.
  6. Besedes, Tibor & Prusa, Thomas J., 2006. "Product differentiation and duration of US import trade," Journal of International Economics, Elsevier, vol. 70(2), pages 339-358, December.
  7. Paulo Bastos & Joana Silva, . "The Quality of a Firm’s Exports: Where you Export to Matters," Discussion Papers 08/18, University of Nottingham, GEP.
  8. Nicolas Berman, 2009. "Financial Crises and International Trade: The Long Way to Recovery," Economics Working Papers ECO2009/23, European University Institute.
  9. Borin, Alessandro & Lamieri, Marco, 2007. "Estimating Product Quality in International Trade," MPRA Paper 14678, University Library of Munich, Germany.
  10. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
  11. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
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