The Role of Trade Partners on Product Quality: The case of Uruguay

We explore the link between export and import products quality to/from high-income countries using a rich database for Uruguay over the period 1997-2008. We use two econometric techniques to tackle the likely endogeneity problem: fixed effects by firm panel models with lagged regressors and dynamic panel models. The most robust results are a negative effect of distance on export quality, and that a higher share of exports to high-income countries and average GDP to export countries have a negative effect on import quality. The negative impact of exports to high-income countries on import quality results can be explained by the type of goods exported to high-income countries, which are mainly commodities in nature with low scope for vertical differentiation and that use mainly local inputs.