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Offshoring and Patterns of Quality Growth: Evidence from Danish Apparel

  • Valerie Smeets

    ()

    (Department of Economics and Business, Aarhus University)

  • Sharon Traiberman

    (Princeton University)

  • Frederic Warzynski

    (Department of Economics and Business, Aarhus University)

Recently a small empirical literature has taken off attempting to analyze the role that quality plays in our understanding of trade. In particular, the recent work of Khandelwal (2010) has brought the insights of structural IO models of demand to bear into trade data. Our work builds on this new structural literature; we use similar demand estimation techniques on a panel of Danish apparel firms from 1997 to 2010 in order to analyze how firms responded to China’s entry to the WTO and the dismantling of the Multi-Fibre Agreement. We find substantial changes in the aggregate level as the distribution of quality tightens up and import competition appears to spur entry of higher quality firms and exit of lower quality producers. The reduction in trade costs leads to a massive increase in offshoring. The association of offshoring and quality depends on the quality of the sourcing country – while offshoring is generally associated with higher quality, offshoring to China is not. The reductions in trade costs also lead to changes in the distribution of prices and quality-adjusted prices. This has implications for policy as understanding the distribution of prices faced by heterogeneous consumers is key to understand how trade affects consumers along the income distribution.

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Paper provided by Department of Economics and Business Economics, Aarhus University in its series Economics Working Papers with number 2013-25.

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Length: 35
Date of creation: 19 Nov 2013
Date of revision:
Handle: RePEc:aah:aarhec:2013-25
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  1. Sutton, John, 2012. "Competing in Capabilities: The Globalization Process," OUP Catalogue, Oxford University Press, number 9780199274536, December.
  2. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
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  4. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
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  6. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  7. John Sutton, 2001. "Technology and Market Structure: Theory and History," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262692643, March.
  8. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-97, December.
  9. Irene Brambilla & Amit Khandelwal & Peter Schott, 2007. "China's Experience Under the Multifiber Arrangement (MFA) and the Agreement on Textiles and Clothing (ATC)," NBER Working Papers 13346, National Bureau of Economic Research, Inc.
  10. Maurice Kugler & Eric Verhoogen, 2009. "Plants and Imported Inputs: New Facts and an Interpretation," American Economic Review, American Economic Association, vol. 99(2), pages 501-07, May.
  11. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
  12. Daniel Yi Xu & Ana Cecilia Fieler & Marcela Eslava, 2012. "Trade, competition and quality-upgrading: A theory with evidence from Colombia," 2012 Meeting Papers 471, Society for Economic Dynamics.
  13. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
  14. Mark J. Roberts & Daniel Yi Xu & Xiaoyan Fan & Shengxing Zhang, 2012. "The Role of Firm Factors in Demand, Cost, and Export Market Selection for Chinese Footwear Producers," NBER Working Papers 17725, National Bureau of Economic Research, Inc.
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