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The China Phenomenon: Price, Quality or Variety?

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  • Roberto Álvarez
  • Sebastián Claro

Abstract

China’s exports have skyrocketed in the last 15 years. We use highly-disaggregated import data from Chile between 1990 and 2005 to decompose the causes of such export performance. We find that China’s high export growth is mainly explained by an increase in the quality of its varieties relative to those from the rest of the world, which raises world demand for its varieties as well as it increases the number of varieties produced in China. Our results show that Chinese products are cheaper than those from the rest of the world, but the small decline in their relative price has a negligible contribution to the growth of China’s penetration. There is heterogeneity across products, however. The increase in quality and the decline in product prices are more pronounced for highly-differentiated products. Because international product-price differences reflect productivity and factor cost differences, these results reveal that productivity growth has been higher in highlydifferentiated products, which coincides with the pattern of quality growth. Therefore, we conjecture that productivity growth is behind the increase in the quality of Chinese varieties as well as the raise in number of varieties produced and exported by China.

Suggested Citation

  • Roberto Álvarez & Sebastián Claro, 2006. "The China Phenomenon: Price, Quality or Variety?," Working Papers Central Bank of Chile 411, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:411
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    References listed on IDEAS

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    1. C. Simon Fan, 2005. "Increasing Returns, Product Quality and International Trade," Economica, London School of Economics and Political Science, vol. 72(285), pages 151-169, February.
    2. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    3. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    4. Brambilla, Irene, 2009. "Multinationals, technology, and the introduction of varieties of goods," Journal of International Economics, Elsevier, vol. 79(1), pages 89-101, September.
    5. Peter K. Schott, 2008. "The relative sophistication of Chinese exports," Economic Policy, CEPR;CES;MSH, vol. 23, pages 5-49, January.
    6. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-822, December.
    7. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    8. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    9. WHALLEY, John & XIN, Xian, 2010. "China's FDI and non-FDI economies and the sustainability of future high Chinese growth," China Economic Review, Elsevier, vol. 21(1), pages 123-135, March.
    10. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
    11. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
    12. 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.
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    Cited by:

    1. Vittorio Corbo & Andrea Tokman, 2007. "Latin America in a Global World: Challenges Ahead," Economic Policy Papers Central Bank of Chile 19, Central Bank of Chile.
    2. Ruan, Jianqing & Zhang, Xiaobo, 2010. "“Made in China”: Crisis begets quality upgrade," IFPRI discussion papers 1025, International Food Policy Research Institute (IFPRI).

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