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Estimating Cross-Country Differences in Product Quality

  • Juan Carlos Hallak
  • Peter K. Schott

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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Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 126 (2011)
Issue (Month): 1 ()
Pages: 417-474

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Handle: RePEc:oup:qjecon:v:126:y:2011:i:1:p:417-474
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  1. 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.
  2. Giancarlo Corsetti & Philippe Martin & Paolo A. Pesenti, 2005. "Productivity Spillovers, Terms of Trade and the "Home Market Effect"," NBER Working Papers 11165, National Bureau of Economic Research, Inc.
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  4. Brooks, Eileen L., 2006. "Why don't firms export more? Product quality and Colombian plants," Journal of Development Economics, Elsevier, vol. 80(1), pages 160-178, June.
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  20. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  21. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
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