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Estimating Cross-Country Differences in Product Quality

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Author Info
Juan Carlos Hallak
Peter K. Schott

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Abstract

We develop a method for decomposing countries' observed export prices into quality versus quality-adjusted-price components using information contained in their trade balances. Holding observed export prices constant, countries with surpluses are inferred to offer higher quality than countries running deficits. Our method accounts for variation in trade balances induced by horizontal and vertical differentiation. We use our method to examine manufacturing product quality among the world's top exporters from 1989 to 2003. We find that the initial quality gap between high- and low-income countries is smaller than their initial income gap, and that the former narrows considerably faster over time.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13807.

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Date of creation: Feb 2008
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Handle: RePEc:nbr:nberwo:13807

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F2 - International Economics - - International Factor Movements and International Business
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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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.:
  1. Feenstra, R.C., 1995. "Exact Hedonic Price Indexes," Department of Economics 95-11, California Davis - Department of Economics.
    Other versions:
  2. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March. [Downloadable!] (restricted)
  3. Feenstra, Robert C, 1988. "Quality Change under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 131-46, February. [Downloadable!] (restricted)
  4. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2005. "Productivity Spillovers, Terms of Trade and the 'Home Market Effect'," CEPR Discussion Papers 4964, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Robert C. Feenstra & Alan Heston & Marcel P. Timmer & Haiyan Deng, 2004. "Estimating Real Production and Expenditures Across Nations: A Proposal for Improving the Penn World Tables," NBER Working Papers 10866, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," NBER Working Papers 12885, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Aiginger, Karl, 1997. "The Use of Unit Values to Discriminate between Price and Quality Competition," Cambridge Journal of Economics, Oxford University Press, vol. 21(5), pages 571-92, September.
  8. Amit Khandelwal, 2009. "The Long and Short (of) Quality Ladders," NBER Working Papers 15178, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer. [Downloadable!] (restricted)
  10. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  12. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March. [Downloadable!]
  13. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund. [Downloadable!]
  14. Peter K. Schott, 2008. "The relative sophistication of Chinese exports," Economic Policy, CEPR, CES, MSH, vol. 23, pages 5-49, 01. [Downloadable!] (restricted)
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  15. Mark Bils, 2004. "Measuring the Growth from Better and Better Goods," NBER Working Papers 10606, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  17. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  18. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January. [Downloadable!] (restricted)
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  19. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June. [Downloadable!]
  20. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund. [Downloadable!]
  2. Pablo D. Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2009. "Income Distribution, Product Quality, and International Trade," NBER Working Papers 15329, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Kugler, Maurice & Verhoogen, Eric A., 2009. "The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia," CEPR Discussion Papers 7119, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Zhi Wang & Shang-Jin Wei, 2008. "What Accounts for the Rising Sophistication of China's Exports?," NBER Working Papers 13771, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Zhi Wang, 2008. "The Chinese Export Bundles: Patterns, Puzzles and Possible Explanations," Working Papers id:1774, esocialsciences.com. [Downloadable!]
  6. Raphael Auer & Thomas Chaney, 2009. "Exchange rate pass-through in a competitive model of pricing-to-market," Globalization and Monetary Policy Institute Working Paper 23, Federal Reserve Bank of Dallas. [Downloadable!]
    Other versions:
  7. Rosario Crinò & Paolo Epifani, 2009. "Export Intensity and Productivity," Development Working Papers 271, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
  8. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Nguyen, Thang, 2005. "Separating Productivity and Quality Effects from Relative Prices," MPRA Paper 225, University Library of Munich, Germany, revised 01 Nov 2006. [Downloadable!]
  10. Tibor Besedes, . "A Search Cost Perspective on Duration of Trade," Departmental Working Papers 2006-12, Department of Economics, Louisiana State University. [Downloadable!]
  11. Peter K. Schott, 2006. "The Relative Sophistication of Chinese Exports," NBER Working Papers 12173, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Marialuz Moreno Badia & Veerle Slootmaekers & Ilke Van Beveren, 2008. "Globalization Drives Strategic Product Switching," IMF Working Papers 08/246, International Monetary Fund. [Downloadable!]
  13. Roberto Álvarez & Sebastián Claro, 2007. "On the Sources of China’s Export Growth," Working Papers Central Bank of Chile 426, Central Bank of Chile. [Downloadable!]
  14. Kozo Koyota, 2008. "Are U.S. Exports Different from China's Exports? Evidence from Japan's Imports," Working Papers 576, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  15. 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. [Downloadable!] (restricted)
  16. Roberto Álvarez & Sebastián Claro, 2006. "The china price: evidence and some implications," Estudios de Economia, University of Chile, Department of Economics, vol. 33(2 Year 20), pages 117-140, December. [Downloadable!]
  17. Katherine M. Sauer, 2008. "The quality of parallel imports," Economics Bulletin, Economics Bulletin, vol. 6(44), pages 1-10. [Downloadable!]
  18. Hasan Faruq, 2006. "New Evidence on Product Quality and Trade," Caepr Working Papers 2006-019, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington. [Downloadable!]
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