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Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade

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  • Richard Kneller
  • Zhihong Yu

Abstract

Recent models of international trade have identified product quality as an important determinant of bilateral trade flows. Yet relatively little is understood about the relationship between the characteristics of the export market and the quality of products. In this paper we examine this link using Chinese data. We find evidence that product unit values vary with standard gravity variables in a different manner across sectors of the Chinese economy, and run contrary to earlier findings for the U.S. These results are not compatible with existing heterogeneous firm trade models such as Melitz (2003) model and its extension to include product quality by Baldwin and Harrigan (2007). To explain these differences we propose a heterogeneous firm trade model with quality differences and spatial price discrimination based on Melitz and Ottaviano (2007).

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/44.

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Handle: RePEc:not:notgep:08/44

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Keywords: product quality; heterogeneous firms; Chinese exports;

References

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  1. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  2. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
  3. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  4. Yo Chul Choi & David Hummels & Chong Xiang, 2006. "Explaining Import Variety and Quality: The Role of the Income Distribution," NBER Working Papers 12531, National Bureau of Economic Research, Inc.
  5. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, Elsevier, vol. 68(1), pages 238-265, January.
  6. Peter K. Schott, 2008. "The relative sophistication of Chinese exports," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 23, pages 5-49, 01.
  7. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
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Cited by:
  1. Holger Gorg & Laszlo Halpern & Balazs Murakozy, 2010. "Why Do Within Firm-Product Export Prices Differ across Markets?," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1003, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Affortunato Francesca & Mattoscio Nicola, 2012. "Price Vs Quality Competition And The Spatial Pattern Of Average Prices In International Trade," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 204-210, July.
  3. Beata Javorcik & Peter Neary & Carsten Eckel and Leonardo Iacovone, 2010. "Multi-product firms at home and away: Cost- versus quality-based competence," Economics Series Working Papers, University of Oxford, Department of Economics 522, University of Oxford, Department of Economics.
  4. Jennie Bai & Jia Guo & Benjamin Mandel, 2013. "Going global: markups and product quality in the Chinese art market," Staff Reports, Federal Reserve Bank of New York 614, Federal Reserve Bank of New York.
  5. Ito, Tadashi, 2012. "Revisiting the determinants of unit values," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 356, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  6. Roberto Basile & Sergio de Nardis & Alessandro Girardi, 2009. "Pricing to market when quality matters," ISAE Working Papers, ISTAT - Italian National Institute of Statistics - (Rome, ITALY) 123, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).

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