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Skill-Based Quality Upgrading and International Trade

Author

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  • Egger, Peter
  • Stefanova, Stefani
  • Suverato, Davide

Abstract

We propose a new quantitative trade model in which consumers value quality and monopolistically competitive firms charge variable markups and allocate skill-specific labor between production and quality-upgrading innovation. Building on existing literature that documents frictions in the assessment of imported goods' quality, we model these as non-ad-valorem trade barriers that distort incentives for quality upgrading and find strong evidence of this mechanism in the model's structural estimation. Quantifying the multi-country, multi-sector, general-equilibrium model for 26 European economies, we compare counterfactual increases in ad-valorem and non-ad-valorem trade barriers and assess their effects on selection, efficiency, quality, skill premium, and welfare.

Suggested Citation

  • Egger, Peter & Stefanova, Stefani & Suverato, Davide, 2025. "Skill-Based Quality Upgrading and International Trade," CEPR Discussion Papers 20851, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20851
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    File URL: https://cepr.org/publications/DP20851
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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