IDEAS home Printed from https://ideas.repec.org/p/ags/aaea13/150469.html
   My bibliography  Save this paper

Quality Standards, International Trade and the Evolution of Industries

Author

Listed:
  • Gaigné, Carl
  • Larue, Bruno

Abstract

We study the impact of public quality standards on industry structure and trade when firms may be able to develop their own private standard with a higher quality than the public standard. To reach our goal, we introduce vertical differentiation in an international trade model based on monopolistic competition in which firms differ in terms of their productivity and select non cooperatively the quality of their product. Firms must incur two fixed export costs when exporting to any given destination: a generic one (i.e., setting up a distribution system) and a destination‐specific one to meet the quality standard prevailing in the importing country. Variable costs are also increasing in quality. Not surprisingly, the absolute mass of firms in any given country is decreasing in the domestic standard, but contrary to popular wisdom, the relative mass (market share) of foreign firms is increasing in the domestic standard. A relatively lower (higher) wage (labour endowment) in the exporting country helps foreign firms gain market share in the domestic market. We also show that the ratio of minimum productivity required for foreign firms and for domestic firms to be active in the domestic market is increasing in trade costs, but decreasing in quality. The implication for public policy is that lowering tariffs and increasing quality standards benefit highly productive foreign firms which gain from the quality‐induced exit of less productive domestic and foreign firms. Welfare is concave with respect to quality and governments have an incentive to impose standards, but some firms have an incentive to impose higher private standards.

Suggested Citation

  • Gaigné, Carl & Larue, Bruno, 2013. "Quality Standards, International Trade and the Evolution of Industries," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150469, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea13:150469
    as

    Download full text from publisher

    File URL: http://ageconsearch.umn.edu/record/150469/files/NTB-AAEA.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stephen J. Redding, 2011. "Theories of Heterogeneous Firms and Trade," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 77-105, September.
    2. Chevassus-Lozza, Emmanuelle & Gaigné, Carl & Le Mener, Léo, 2013. "Does input trade liberalization boost downstream firms' exports? Theory and firm-level evidence," Journal of International Economics, Elsevier, vol. 90(2), pages 391-402.
    3. repec:wsi:wschap:9789813144415_0011 is not listed on IDEAS
    4. Stéphan Marette & John Beghin, 2017. "Are Standards Always Protectionist?," World Scientific Book Chapters,in: Nontariff Measures and International Trade, chapter 11, pages 179-192 World Scientific Publishing Co. Pte. Ltd..
    5. Eric Giraud‐Héraud & Abdelhakim Hammoudi & Ruben Hoffmann & Louis‐Georges Soler, 2012. "Joint Private Safety Standards and Vertical Relationships in Food Retailing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 179-212, March.
    6. Lutz, Stefan & Lyon, Thomas P & Maxwell, John W, 2000. "Quality Leadership When Regulatory Standards Are Forthcoming," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 331-348, September.
    7. Daniel Sturm, 2006. "Product standards, trade disputes, and protectionism," Canadian Journal of Economics, Canadian Economics Association, vol. 39(2), pages 564-581, May.
    8. Boom, Anette, 1995. "Asymmetric International Minimum Quality Standards and Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 101-119, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Industrial Organization; Institutional and Behavioral Economics; International Relations/Trade;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea13:150469. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/aaeaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.