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Firms' Exporting Behavior under Quality Constraints

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  • Hallak, Juan Carlos

    (Universidad de San Andres, NBER, and CONICET)

  • Sivadasan, Jagadeesh

    (University of Michigan)

Abstract

We develop a model of international trade with two dimensions of firm heterogeneity and export quality constraints that manifest as higher variable trade costs for lower quality fi rms. In addition to "productivity", firms are also heterogeneous in their "caliber" -- the ability to develop high-quality products with lower fixed outlays. The model predicts various conditional exporter premia. Conditional on size, exporters sell higher quality products, charge higher prices, pay higher input prices and higher wages, and use capital more intensively. Some of these predictions have already been documented in the empirical literature. However, although they are apparently an intuitive implication of single-attribute models, conditional exporter premia cannot be rationalized through these models as they imply no variation in export status once size is controlled for. We test these predictions using manufacturing establishment data for India, the U.S., Chile, and Colombia, and find strong support for the model. We also investigate the sources of export quality constraints using firm-level trade shipment data for the U.S. and India. Destination per-capita income plays a key role for fi rms in India. For fi rms in the U.S., both distance and destination per-capita income play a role, though the effect of per-capita income is about a third of its magnitude for India.

Suggested Citation

  • Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2011. "Firms' Exporting Behavior under Quality Constraints," Working Papers 628, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:628
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    More about this item

    Keywords

    productivity; caliber; xed costs; exports; rm heterogeneity;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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