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Estimating Cross-Country Differences in Product Quality

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  • Juan Carlos Hallak
  • Peter K. Schott

Abstract

We develop a method for decomposing countries' observed export prices into quality versus quality-adjusted components using information contained in trade balances. Holding observed export prices constant, countries with trade surpluses are inferred to offer higher quality than countries running trade deficits. We account for variation in trade balances induced by horizontal and vertical differentiation, and we estimate the evolution of manufacturing quality for top exporters from 1989 to 2003. We find that observed unit value ratios can be a poor approximation for relative quality differences, countries' quality is converging more rapidly than their income, and countries appear to vary in terms of displaying "high-quality" versus "low-price" growth strategies. Copyright 2011, Oxford University Press.

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  • Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    • Handle: RePEc:oup:qjecon:v:126:y:2011:i:1:p:417-474
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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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