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Comparative Advantages with Product Complexity and Product Quality

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  • Schetter, Ulrich

Abstract

We analyze the interplay between product-intrinsic complexity and endogenously chosen product quality in international trade. Our work reveals a novel mecha-nism that can explain a rich set of empirical observations: (1) how specialization within products on quality can equalize comparative advantages across products,(2) why poor countries do not export a broad range of products nonetheless, and (3) why the share of products for which this is the case tends to be decreasing over time. Our theory motivates the use of a censored regression model to esti-mate the link between a country’s GDP per capita and the quality of its exports. Following this empirical strategy, we find a much stronger relationship than when using OLS, in line with our theory.

Suggested Citation

  • Schetter, Ulrich, 2016. "Comparative Advantages with Product Complexity and Product Quality," VfS Annual Conference 2016 (Augsburg): Demographic Change 145933, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145933
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    References listed on IDEAS

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    1. Gersbach, Hans & Schmassmann, Samuel, 2019. "Skills, Tasks, and Complexity," IZA Discussion Papers 12770, Institute of Labor Economics (IZA).

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F19 - International Economics - - Trade - - - Other

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