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Competition and Quality Upgrading

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  • Amiti, Mary
  • Khandelwal, Amit

Abstract

How does competition affect innovation? We address this question by using a novel approach to measure quality - an important component of innovation - using highly disaggregated product data for a large set of countries. Constructing an internationally comparable measure of quality enables us to separate the effect of reducing import tariffs, our measure of competition, on quality upgrading from other country level differences in competitive environments, and product demand shocks. We base our analysis on recent theoretical frameworks that predict that the effect of competition on innovation depends on firms’ proximity to the world technological frontier. As predicted by theory, we find that lower tariffs are associated with quality upgrading for products close to the world frontier; whereas lower tariffs discourage quality upgrading for varieties distant from the frontier.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7562.

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Date of creation: Nov 2009
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Handle: RePEc:cpr:ceprdp:7562

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Related research

Keywords: Competition; Growth; Proximity to Frontier; Quality Upgrading;

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References

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  1. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  2. Paulo Bastos & Joana Silva, . "The Quality of a Firm’s Exports: Where you Export to Matters," Discussion Papers 08/18, University of Nottingham, GEP.
  3. Kalina Manova & Zhiwei Zhang, 2009. "Export Prices Across Firms and Destinations," NBER Working Papers 15342, National Bureau of Economic Research, Inc.
  4. Maurice Kugler & Eric Verhoogen, 2008. "The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia," NBER Working Papers 14418, National Bureau of Economic Research, Inc.
  5. Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers.
  6. Laszlo Halpern & Miklos Koren & Adam Szeidl, 2006. "Imports and Productivity," 2006 Meeting Papers 796, Society for Economic Dynamics.
  7. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
  8. 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.
  9. Pinelopi K. Goldberg & Amit Khandelwal & Nina Pavcnik & Petia Topalova, 2008. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," NBER Working Papers 14416, National Bureau of Economic Research, Inc.
  10. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
  11. Cardell, N. Scott, 1997. "Variance Components Structures for the Extreme-Value and Logistic Distributions with Application to Models of Heterogeneity," Econometric Theory, Cambridge University Press, vol. 13(02), pages 185-213, April.
  12. Blundell, Richard & Griffith, Rachel & van Reenen, John, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 529-54, July.
  13. Irene Brambilla & Amit Khandelwal & Peter Schott, 2007. "China's Experience Under the Multifiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Working Papers 13346, National Bureau of Economic Research, Inc.
  14. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  15. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
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Citations

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Cited by:
  1. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. LATZER, Hélène & MAYNERIS, Florian, 2012. "Income distribution and vertical comparative advantage. Theory and evidence," CORE Discussion Papers 2012034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc.
  4. Van Hove, Jan, 2009. "Variety and Quality in Intra-European Manufacturing Trade: The Impact of Innovation and Technological Spillovers," Working Papers 2009/43, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  5. Bloom, Nicholas & Draca, Mirko & Van Reenen, John, 2011. "Trade induced technical change? The impact of Chinese imports on innovation, IT and productivity," CEPR Discussion Papers 8236, C.E.P.R. Discussion Papers.

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