Evidence of Product Differentiation and Relative Quality in Italian Trade

World trade has increased in the recent years and international trade flows are often intra-industrial, thus competition is based on quality and characteristics other than on cost. Italy is exceptional respect to developed economies: it did not leave mature industries to specialise in advanced ones. The literature suggests that Italy has reacted to competition upgrading the quality of its exports and the main effects of globalisation include greater shares of Intra-Industry Trade and especially of Vertical Intra-Industry Trade. This article further investigates this hypothesis. It studies the composition and the competitiveness of Italian trade from geographical and sectoral points of view. This article finds a strong weight of Intra-Industry Trade and vertical differentiation in Italian trade but Italy supplies low-quality items. Notwithstanding limited signs of improvement, Italian trade is still highly vulnerable to price competition from emerging countries. In fact, most of the sectors and of the markets that contribute positively to the trade balance show a prevalence of low-quality exports, suggesting competitiveness based on low quality. Few traditional sectors and poorer EU markets, as Greece, Spain and Portugal, are the unique exceptions. Finally most of the other markets and sectors are characterised by un-competitiveness and low quality, highlighting negative impacts of competition of low-cost producers.