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Deductions from the Export Basket: Capabilities, Wealth and Trade

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  • John Sutton
  • Daniel Trefler

Abstract

This paper re-explores the relation between a country's level of wealth and the mix of products it exports. We argue that both are simultaneously determined by countries' capabilities i.e. by countries' productivity and quality levels for each good. Our theoretical setup has two features. (1) Some goods have fewer high-quality producers/countries than others i.e. there is Ricardian comparative advantage. (2) Imperfect competition allows high- and low-quality producers to coexist, which we refer to as 'product ranges'. These two features generate a very particular non-monotonic, general equilibrium relationship between a country's export mix and its wage (GDP per capita). We show that this non-monotonicity permeates the 1980-2005 international data on trade and GDP per capita. Our setup also explains two other facets of the data: (1) Product ranges are huge and (2) for the poorest third of countries, changes in export mix substantially over-predict growth in GDP per capita. This suggests that the main challenge for low-income countries is to raise quality and productivity in their existing product lines.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16834.

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Date of creation: Feb 2011
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Handle: RePEc:nbr:nberwo:16834

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  1. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 77(2), pages 265-275, April.
  2. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
  3. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  4. Kugler, M., Verhoogen, E.A., 2008. "Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia," Working Papers eg0058, Wilfrid Laurier University, Department of Economics, revised Feb 2008.
  5. Lall, Sanjaya & Weiss, John & Zhang, Jinkang, 2006. "The "sophistication" of exports: A new trade measure," World Development, Elsevier, vol. 34(2), pages 222-237, February.
  6. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
  7. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
  8. Mary Amiti & Amit K. Khandelwal, 2009. "Import Competition and Quality Upgrading," NBER Working Papers 15503, National Bureau of Economic Research, Inc.
  9. Paulo Bastos & Joana Silva, . "The Quality of a Firm’s Exports: Where you Export to Matters," Discussion Papers 08/18, University of Nottingham, GEP.
  10. Amit Khandelwal, 2007. "The Long and Short (of) Quality Ladders," 2007 Meeting Papers 244, Society for Economic Dynamics.
  11. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
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Cited by:
  1. Martin, Julien & Mejean, Isabelle, 2014. "Low-wage country competition and the quality content of high-wage country exports," Journal of International Economics, Elsevier, vol. 93(1), pages 140-152.
  2. Christian Henn & Chris Papageorgiou & Nicola Spatafora, 2013. "Export Quality in Developing Countries," IMF Working Papers 13/108, International Monetary Fund.
  3. Andreas Reinstaller & Fabian Unterlass, 2012. "Innovation at the Firm Level across Countries with Different Economic and Technological Capacity," WIFO Working Papers 436, WIFO.

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