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Quality and the Great Trade Collapse

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  • Chen, Natalie
  • Juvenal, Luciana

Abstract

We investigate theoretically and empirically the heterogeneous effects of the global financial crisis on international trade flows differentiated by quality. Our model, which identifies the effect of quality on trade that arises on the demand side, through the relationship between income and quality choice, predicts that a negative income shock disproportionately reduces the demand for higher relative to lower quality traded goods (a “flight from quality”). Using a unique dataset of firm-level wine exports for an emerging market economy, Argentina, combined with experts wine ratings as a measure of quality, we find strong evidence of a flight from quality as we show that the values, volumes, unit values, and markups of higher quality exports contracted more sharply during the crisis. Our results imply that the exports of countries producing higher quality goods are likely to collapse more severely during recessions.

Suggested Citation

  • Chen, Natalie & Juvenal, Luciana, 2018. "Quality and the Great Trade Collapse," Journal of Development Economics, Elsevier, vol. 135(C), pages 59-76.
  • Handle: RePEc:eee:deveco:v:135:y:2018:i:c:p:59-76
    DOI: 10.1016/j.jdeveco.2018.06.012
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    Cited by:

    1. Paulo Bastos & Joana Silva & Eric Verhoogen, 2018. "Export Destinations and Input Prices," American Economic Review, American Economic Association, vol. 108(2), pages 353-392, February.
    2. Di Ubaldo, Mattia, 2016. "Firms and trade in downturns," Economics PhD Theses 0416, Department of Economics, University of Sussex Business School.
    3. Chen, Natalie & Juvenal, Luciana, 2019. "Markups, Quality, and Trade Costs," CAGE Online Working Paper Series 446, Competitive Advantage in the Global Economy (CAGE).
    4. A. M. M. Shahiduzzaman Quoreshi & Trudy-Ann Stone, 2019. "Do Global Value Chains Make Firms More Vulnerable to Trade Shocks?—Evidence from Manufacturing Firms in Sweden," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(3), pages 1-16, September.
    5. Chen, Natalie & Juvenal, Luciana, 2019. "Markups, Quality, and Trade Costs," CAGE Online Working Paper Series 446, Competitive Advantage in the Global Economy (CAGE).
    6. Jaimovich, Nir & Rebelo, Sergio & Wong, Arlene, 2019. "Trading down and the business cycle," Journal of Monetary Economics, Elsevier, vol. 102(C), pages 96-121.
    7. Mattia Di Ubaldo, 2015. "Product Cost-Share: a Catalyst of the Trade Collapse," Working Paper Series 8015, Department of Economics, University of Sussex Business School.

    More about this item

    Keywords

    Emerging markets; Exports; Financial crisis; Heterogeneity; Markups; Quality; Unit values; Wine;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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