Advanced Search
MyIDEAS: Login to save this paper or follow this series

Heterogeneous quality firms and trade costs

Contents:

Author Info

  • Helble, Matthias
  • Okubo, Toshihiro

Abstract

There is increasing empirical evidence that vertical product differentiation is an important determinant of international trade. However, the economic literature so far has solely focused on the case in which quality trade stems from differences between countries. No studies investigate the role of quality trade between similar economies. This paper first develops a simple theoretical trade model that includes vertical product differentiation in a heterogeneous-firm framework. The model yields three main predictions for trade between similar economies. First, exported goods are of higher quality than goods sold on the domestic market. Second, larger economies have on average higher export qualities compared with smaller economies. Third, with increasing trade costs higher quality goods are exchanged. For all three effects, strong empirical support is found using detailed export trade data of the United States and 15 European Union countries.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2008/03/11/000158349_20080311104410/Rendered/PDF/wps4550.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4550.

as in new window
Length:
Date of creation: 01 Mar 2008
Date of revision:
Handle: RePEc:wbk:wbrwps:4550

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Economic Theory&Research; Markets and Market Access; Common Carriers Industry; Free Trade; Transport and Trade Logistics;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  2. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(2), pages 646-677, May.
  3. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
  4. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," NBER Working Papers 10668, 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. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 300-316, March.
  7. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 950-59, December.
  8. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  9. Murphy, Kevin M. & Shleifer, Andrei, 1997. "Quality and trade," Journal of Development Economics, Elsevier, Elsevier, vol. 53(1), pages 1-15, June.
  10. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," NBER Working Papers 11555, National Bureau of Economic Research, Inc.
  11. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, American Economic Association, vol. 95(3), pages 704-723, June.
  12. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  13. 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, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  14. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, Elsevier, vol. 11(4), pages 495-511, November.
  15. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 959-73, October.
  16. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 810-22, December.
  17. Matthias Helble, 2006. "Border Effect Estimates for France and Germany Combining International Trade and Intra-national Transport Flows," IHEID Working Papers, Economics Section, The Graduate Institute of International Studies 13-2006, Economics Section, The Graduate Institute of International Studies, revised Jun 2006.
  18. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
  19. Toshihiro Okubo, 2007. "Intra-industry Trade, Reconsidered: The Role of Technology Transfer and Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 30(12), pages 1855-1876, December.
  20. Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 36(2), pages 131-46, December.
  21. Nancy L. Stokey, 1989. "The Volume and Composition of Trade Between Rich and Poor Countries," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 849, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  22. Schmalensee, Richard, 1978. "A Model of Advertising and Product Quality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(3), pages 485-503, June.
  23. Toshihiro Okubo, 2009. "Firm heterogeneity and Ricardian comparative advantage within and across sectors," Economic Theory, Springer, Springer, vol. 38(3), pages 533-559, March.
  24. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 9(4), pages 469-479, November.
  25. Caves, Richard E. & Greene, David P., 1996. "Brands' quality levels, prices, and advertising outlays: empirical evidence on signals and information costs," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 14(1), pages 29-52.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, Elsevier, vol. 86(1), pages 43-56.
  2. 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).
  3. Ferguson, Shon, 2011. "Endogenous Product Differentiation, Market Size and Prices," Working Paper Series, Research Institute of Industrial Economics 878, Research Institute of Industrial Economics.
  4. Julien Martin & Isabelle Méjean, 2011. "Low-wage countries' competition, reallocation across firms and the quality content of exports," Working Papers halshs-00962485, HAL.
  5. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 3(2), pages 60-88, May.
  6. Tetsugen Haruyama & Laixun Zhao, 2008. "Trade and Firm Heterogeneity In A Quality-Ladder Model of Growth," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 223, Research Institute for Economics & Business Administration, Kobe University.
  7. Claudio E. Montenegro & Mariana Pereira & Isidro Soloaga, 2011. "El efecto de China en el comercio internacional de América Latina," Estudios de Economia, University of Chile, Department of Economics, University of Chile, Department of Economics, vol. 38(2 Year 20), pages 341-368, December.
  8. Naoto Jinji & Xingyuan Zhang & Shoji Haruna, 2010. "Trade Patterns and International Technology Spillovers:Theory and Evidence from Patent Citations," Discussion papers e-10-006, Graduate School of Economics Project Center, Kyoto University, revised Mar 2011.
  9. Claudio E. Montenegro & Mariana Pereira & Isidro Soloaga, 2010. "China’s effect on Latin America’s international trade," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2010-08, El Colegio de México, Centro de Estudios Económicos.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4550. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.