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Does tougher import competition foster product quality upgrading ?

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Author Info

  • Fernandes, Ana M.
  • Paunov, Caroline

Abstract

Over the past two decades, globalization, and more specifically the increased exposure to competition from low-price producers in China and India, has created a new economic environment for other emerging economies. The most advantageous way for manufacturing firms in those economies to position themselves in domestic and international markets is to offer upgraded and differentiated rather than"mundane"labor-intensive products. This paper investigates whether increased competitive pressure from imports forces firms to improve the quality of their products. The econometric analysis relies on a rich dataset of Chilean manufacturing plants and their products. Product quality is measured with unit values (average prices) and industry-level transport costs are used as an exogenous measure of import competition. The authors find a positive and robust effect of import competition on product quality. This effect is found to be particularly strong for non-exporting plants. The results also show that increased import competition from less advanced economies is the major cause for the positive impact on quality upgrading. The overall evidence points to the benefits of trade openness for product innovation but demonstrates at the same time that competitive pressure alone will not enable local plants to catch up with leading world producers.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4894.

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Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:wbk:wbrwps:4894

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Related research

Keywords: Transport Economics Policy&Planning; Markets and Market Access; Economic Theory&Research; Water and Industry; Access to Markets;

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References

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Citations

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Cited by:
  1. Jennie Bai & Jia Guo & Benjamin Mandel, 2013. "Going global: markups and product quality in the Chinese art market," Staff Reports 614, Federal Reserve Bank of New York.
  2. Murphy, Gavin & Siedschlag, Iulia, 2012. "The Effect of Real Exchange Rate Changes on Labour Productivity Growth," Papers WP439, Economic and Social Research Institute (ESRI).
  3. Maria Bas & Vanessa Strauss-Kahn, 2013. "Input-Trade Liberalization, Export Prices and Quality Upgrading," Sciences Po Economics Discussion Papers 2013-13, Sciences Po Departement of Economics.
  4. Fernandes, Ana M. & Paunov, Caroline, 2012. "The risks of innovation : are innovating firms less likely to die ?," Policy Research Working Paper Series 6103, The World Bank.
  5. Leonardo Iacovone & L.A. Winters, 2010. "Trade as an engine of creative destruction: Mexican experience with Chinese competition," LSE Research Online Documents on Economics 48914, London School of Economics and Political Science, LSE Library.
  6. Daniel Lederman & William F. Maloney, 2012. "Does What You Export Matter? In Search of Empirical Guidance for Industrial Policies," World Bank Publications, The World Bank, number 9371, January.
  7. Aldaba, Rafaelita M., 2012. "Trade Reforms, Competition, and Innovation in the Philippines," Discussion Papers DP 2012-06, Philippine Institute for Development Studies.

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