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Quality Sorting and Trade: Firm-level Evidence for French Wine

  • Matthieu Crozet
  • Keith Head
  • Thierry Mayer

Empirical investigation of the quality interpretation of the Melitz (2003) model of firm heterogeneity and trade has been limited by the lack of direct data on quality. This paper matches firm-level export data with expert assessments of the quality of champagne producers to estimate the key parameters of that model. Quality monotonically increases firm-level prices, the probability of market entry, and export values. The estimated model--which calibrates the relative importance of firm-level quality and idiosyncratic demand--accurately predicts the average quality exported to each country. Simulations show that the data reject the polar alternatives where outcomes are based entirely on either quality or randomness. Copyright 2012, Oxford University Press.

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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 2 ()
Pages: 609-644

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Handle: RePEc:oup:restud:v:79:y:2012:i:2:p:609-644
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  1. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 307-339.
  2. Lawless, Martina & Whelan, Karl, 2007. "A Note on Trade Costs and Distance," MPRA Paper 5804, University Library of Munich, Germany.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  4. Gianmarco Ottaviano & Thierry Mayer, . "The happy few: the internationalisation of European firms," Blueprints, Bruegel, number 12, June.
  5. Eaton, Jonathan & Kortum, Samuel, 2001. "Trade in capital goods," European Economic Review, Elsevier, vol. 45(7), pages 1195-1235.
  6. Francis Kramarz & Jonathan Eaton & Samuel Kortum, 2005. "An Anatomy of International Trade: Evidence from French Firms," 2005 Meeting Papers 197, Society for Economic Dynamics.
  7. Baldwin, Richard & Ito, Tadashi, 2008. "Quality Competition Versus Price Competition Goods: An Empirical Classification," CEPR Discussion Papers 6952, C.E.P.R. Discussion Papers.
  8. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
  9. Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers.
  10. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  11. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  12. Yeaple, Stephen & Helpman, Elhanan & Melitz, Marc, 2004. "Export versus FDI with Heterogeneous Firms," Scholarly Articles 3229098, Harvard University Department of Economics.
  13. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
  14. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
  15. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  16. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  17. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
  18. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," American Economic Review, American Economic Association, vol. 94(2), pages 150-154, May.
  19. 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.
  20. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  21. Benjamin R. Mandel, 2010. "Heterogeneous firms and import quality: evidence from transaction-level prices," International Finance Discussion Papers 991, Board of Governors of the Federal Reserve System (U.S.).
  22. repec:oup:qjecon:v:123:y:2008:i:2:p:489-530 is not listed on IDEAS
  23. repec:oup:qjecon:v:123:y:2008:i:2:p:441-487 is not listed on IDEAS
  24. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2008. "Productivity, quality and exporting behavior under minimum quality constraints," MPRA Paper 24146, University Library of Munich, Germany.
  25. repec:oup:qjecon:v:119:y:2004:i:2:p:646-677 is not listed on IDEAS
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