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Measuring quality in international trade

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  • Liao, Chi-Hung

Abstract

Product quality plays a vital role in international trade flows, but the measurement of quality remains to be a challenge because true quality is usually unobserved in trade data. In this study, we propose a straightforward measurement of quality--the weighted-income index--and compare it with the unit-value proxy in a microeconomic model with quality choice. Then we compare the two measurements in the automobile industry. The empirical result shows that the weighted-income quality index performs better than the unit-value quality proxy in ranking true quality.

Suggested Citation

  • Liao, Chi-Hung, 2011. "Measuring quality in international trade," Economic Systems, Elsevier, vol. 35(1), pages 125-138, March.
  • Handle: RePEc:eee:ecosys:v:35:y:2011:i:1:p:125-138
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 557-586.
    2. Anderson, Simon P & de Palma, Andre, 2001. "Product Diversity in Asymmetric Oligopoly: Is the Quality of Consumer Goods Too Low?," Journal of Industrial Economics, Wiley Blackwell, vol. 49(2), pages 113-135, June.
    3. Copeland, Brian R. & Kotwal, Ashok, 1996. "Product quality and the theory of comparative advantage," European Economic Review, Elsevier, vol. 40(9), pages 1745-1760, December.
    4. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November.
    5. Jørgen Nielsen & Teit Lüthje, 2002. "Tests of the empirical classification of horizontal and vertical intra-industry trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 138(4), pages 587-604, December.
    6. Fukao, Kyoji & Ishido, Hikari & Ito, Keiko, 2003. "Vertical intra-industry trade and foreign direct investment in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 468-506, December.
    7. Robert C. Feenstra, 1988. "Quality Change Under Trade Restraints in Japanese Autos," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 131-146.
    8. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    9. C. Simon Fan, 2005. "Increasing Returns, Product Quality and International Trade," Economica, London School of Economics and Political Science, vol. 72(285), pages 151-169, February.
    10. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    11. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-822, December.
    12. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
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    Cited by:

    1. Daniele Curzi & Lucia Pacca & Alessandro Olper, 2013. "Estimating Food Quality from Trade Data: An Empirical Assessment," LICOS Discussion Papers 33913, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    2. Bojnec, Stefan & Ferto, Imre, 2016. "Patterns and Drivers of the Agri-Food Intra-Industry Trade of European Union Countries," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 19(2).

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