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Low-wage country competition and the quality content of high-wage country exports

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  • Martin, Julien
  • Mejean, Isabelle

Abstract

We study how competition from low-wage countries in international markets affects the quality content of high-wage country exports. We focus on aggregate quality changes driven by a reallocation of sales from low- to high-quality exporters, within industries. Two alternative indicators are used on firm-level data to measure quality changes. Both lead to similar conclusions. Namely, we show that the mean quality of French exports increased by 10–15% between 1995 and 2005. Quality improvement is significantly more pronounced in markets in which competition from low-wage countries has increased the most. This holds true for various specifications including two different identification strategies. The results are consistent with competition from low-wage countries leading developed countries to specialize within industries in the production of higher quality goods.

Suggested Citation

  • Martin, Julien & Mejean, Isabelle, 2014. "Low-wage country competition and the quality content of high-wage country exports," Journal of International Economics, Elsevier, vol. 93(1), pages 140-152.
  • Handle: RePEc:eee:inecon:v:93:y:2014:i:1:p:140-152
    DOI: 10.1016/j.jinteco.2014.02.002
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    More about this item

    Keywords

    Firm-level data; Quality differentiation; Low-wage country competition; Within-industry specialization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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