New Evidence on Product Quality and Trade
AbstractThis paper examines why different countries export different qualities of products.Previous studies have attributed quality dispersion to differences in factor endowments while no empirical work has been done examining the effect of technology on quality. Using panel data on U.S. imports from 58 countries, we find that the export of high quality differentiated goods is associated with both higher stock of physical capital endowments and research and development (R&D) activities. We also observe that foreign direct investment (FDI) has a positive effect on quality, which is consistent with the literature on FDI and intra-industry trade. These results cannot be replicated by using the reduced form OLS price regression which is commonly used in the literature. Instead, we use a two-equation system in price and quantity to identify the determinants of quality.
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Bibliographic InfoPaper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2006-019.
Length: 40 pages
Date of creation: Nov 2006
Date of revision:
Product Quality; Differentiated Products; Heckscher-Ohlin Model; R&D;
Find related papers by JEL classification:
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-01 (All new papers)
- NEP-INT-2006-12-01 (International Trade)
- NEP-MIC-2006-12-01 (Microeconomics)
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