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Is china climbing up the quality ladder?

Author

Listed:
  • Gabor Pula

    (European Central Bank)

  • Daniel Santabárbara

    () (Banco de España)

Abstract

There is an ongoing debate in the literature about the quality content of Chinese exports and to what extent China poses a threat to the market positions of advanced economies. While China’s export structure is very similar to that of the advanced world, its export unit values are well below the level of developed economies. Building on the assumption that unit values reflect quality, the prevailing view of the literature is that China exports low quality varieties of the same products as its advanced competitors. This paper challenges this view by relaxing the assumption that unit values reflect quality. We derive the quality of Chinese exports to the European Union by estimating disaggregated demand functions from a discrete choice model. The paper has three major findings. First, China’s share of the European Union market is larger than would be justified only by its low average prices, implying that the quality of Chinese exports is high compared to many competitors. Second, China has gained quality relative to other competitors since 1995, indicating that China is climbing up the quality ladder. Finally, our analysis of the supply side determinants reveals that the relatively high quality of Chinese exports is related to processing trade and the increasing role of global production networks in China.

Suggested Citation

  • Gabor Pula & Daniel Santabárbara, 2012. "Is china climbing up the quality ladder?," Working Papers 1209, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1209
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Andrea Cerasa, 2016. "Combining homogeneous groups of preclassified observations with application to international trade," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 70(3), pages 229-259, August.
    2. Giancarlo Corsetti & Luca Dedola & Francesca Viani, 2012. "The international risk sharing puzzle is at business cycle and lower frequency," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 448-471, May.
    3. Konstantins Benkovskis & Julia Wörz, 2016. "Non-price competitiveness of exports from emerging countries," Empirical Economics, Springer, vol. 51(2), pages 707-735, September.
    4. Benkovskis, Konstantins & Wörz, Julia, 2013. "What drives the market share changes? : Price versus non-price factors," BOFIT Discussion Papers 18/2013, Bank of Finland, Institute for Economies in Transition.
    5. Konstantins Benkovskis & Julia Woerz, 2014. ""Made in China" - How Does it Affect Measures of Competitiveness?," Working Papers 2014/04, Latvijas Banka.
    6. Wörz, Julia & Benkovskis, Konstantins, 2015. ""Made in China" - How does it affect our understanding of global market shares?," Working Paper Series 1787, European Central Bank.
    7. Giorgia Giovannetti, Marco Sanfilippo and Margherita Velucchi, 2012. "The impact of China on manufacturing exports of Italy and Germany," RSCAS Working Papers 2012/26, European University Institute.
    8. Dorrucci, Ettore & Pula, Gabor & Santabárbara, Daniel, 2013. "China's economic growth and rebalancing," Occasional Paper Series 142, European Central Bank.
    9. LATZER, Hélène & MAYNERIS, Florian, 2012. "Income distribution and vertical comparative advantage. Theory and evidence," CORE Discussion Papers 2012034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Jose Maria Casado, 2012. "Consumption partial insurance of Spanish households," Working Papers 1214, Banco de España;Working Papers Homepage.
    11. ., 2012. "Global trade, regional trade and emerging Europe," Chapters,in: European Integration in a Global Economy, chapter 9, pages 82-90 Edward Elgar Publishing.
    12. Giorgia Giovannetti & Marco Sanfilippo & Margherita Velucchi, 2011. "The “China effect” on EU Exports to OECD markets – A focus on Italy," Working Papers - Economics wp2011_17.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    13. Hu, Cui & Parsley, David & Tan, Yong, 2017. "Exchange Rate Induced Export Quality Upgrading: A Firm-Level Perspective," MPRA Paper 80506, University Library of Munich, Germany.
    14. Joseph, Andreas & Osbat, Chiara, 2016. "How you export matters: the disassortative structure of international trade," Working Paper Series 1958, European Central Bank.
    15. Joshua Aizenman, 2015. "The Internationalization of the RMB, Capital Market Openness, and Financial Reforms in China," NBER Working Papers 20943, National Bureau of Economic Research, Inc.
    16. Hélène Latzer & Florian Mayneris, 2011. "Trade in quality and income distribution: an analysis of the enlarged EU market," Working Papers of BETA 2011-21, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    Keywords

    Chinese exports; vertical product differentiation; quality ladder; global production networks; discrete choice model; COMEXT database;

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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