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New Evidence on Product Quality and Trade

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Author Info
Hasan Faruq () (Indiana University Bloomington)

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Abstract

This 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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Publisher Info
Paper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2006-019.

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Length: 40 pages
Date of creation: Nov 2006
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Handle: RePEc:inu:caeprp:2006019

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Related research
Keywords: 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; Agricultural Extension Services

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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.:
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    Other versions:
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    Other versions:
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  4. Ludger Woszmann, 2003. "Specifying Human Capital," Journal of Economic Surveys, Blackwell Publishing, vol. 17(3), pages 239-270, 07. [Downloadable!] (restricted)
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    Other versions:
  6. Hummels, David & Levinsohn, James, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 799-836, August. [Downloadable!] (restricted)
    Other versions:
  7. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November. [Downloadable!] (restricted)
  8. 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.
    Other versions:
  9. José Manuel Martins Caetano & Aurora Galego, 2006. "In Search for Determinants of Intra-Industry Trade within an Enlarged Europe," Economics Working Papers 2_2006, University of Évora, Department of Economics (Portugal). [Downloadable!]
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  12. Filippo Reganati & Rosanna Pittiglio, 2005. "Vertical Intra-Industry Trade: Patterns And Determinants In The Italian Case," Quaderni DSEMS 06-2005, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia. [Downloadable!]
  13. Damijan, Joze P. & Knell, Mark & Majcen, Boris & Rojec, Matija, 2003. "The role of FDI, R&D accumulation and trade in transferring technology to transition countries: evidence from firm panel data for eight transition countries," Economic Systems, Elsevier, vol. 27(2), pages 189-204, June. [Downloadable!] (restricted)
  14. Blomstrom, Magnus & Kokko, Ari, 1997. "How foreign investment affects host countries," Policy Research Working Paper Series 1745, The World Bank. [Downloadable!]
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  1. Imbriani, Cesare & Morone, Piergiuseppe & Testa, Giuseppina, 2008. "Exporting quality: is it the right strategy for the Italian manufacturing sector?," MPRA Paper 13327, University Library of Munich, Germany. [Downloadable!]
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