IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/7562.html

Competition and Quality Upgrading

Author

Abstract

How does competition affect innovation? We address this question by using a novel approach to measure quality - an important component of innovation - using highly disaggregated product data for a large set of countries. Constructing an internationally comparable measure of quality enables us to separate the effect of reducing import tariffs, our measure of competition, on quality upgrading from other country level differences in competitive environments, and product demand shocks. We base our analysis on recent theoretical frameworks that predict that the effect of competition on innovation depends on firms? proximity to the world technological frontier. As predicted by theory, we find that lower tariffs are associated with quality upgrading for products close to the world frontier; whereas lower tariffs discourage quality upgrading for varieties distant from the frontier.

Suggested Citation

  • Amiti, Mary & ,, 2009. "Competition and Quality Upgrading," CEPR Discussion Papers 7562, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7562
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP7562
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Kalina Manova & Zhiwei Zhang, 2012. "Export Prices Across Firms and Destinations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 379-436.
    3. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 245-276.
    4. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    5. Laszlo Halpern & Miklos Koren & Adam Szeidl, 2005. "Import and Productivity," CERS-IE WORKING PAPERS 0509, Institute of Economics, Centre for Economic and Regional Studies.
    6. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1727-1767.
    7. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    8. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    9. Cardell, N. Scott, 1997. "Variance Components Structures for the Extreme-Value and Logistic Distributions with Application to Models of Heterogeneity," Econometric Theory, Cambridge University Press, vol. 13(2), pages 185-213, April.
    10. 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.
    11. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    12. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211, August.
    13. repec:pri:cepsud:192goldberg is not listed on IDEAS
    14. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    15. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    16. Mary Amiti, 2000. "Trade Liberalisation of Intermediate Inputs," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(4), pages 299-302, December.
    17. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    18. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    19. Jonathan Vogel, 2008. "Spatial Competition with Heterogeneous Firms," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 423-466, June.
    20. Philippe Aghion, 2009. "Growth and Education," World Bank Publications - Books, The World Bank Group, number 27936, April.
    21. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    22. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, March.
    23. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    24. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    25. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(3), pages 529-554.
    26. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
    27. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December.
    28. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    29. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    30. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    31. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1727-1767.
    32. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    33. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    2. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2016. "The connection between imported intermediate inputs and exports: Evidence from Chinese firms," Journal of International Economics, Elsevier, vol. 101(C), pages 86-101.
    3. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    4. Nakhoda, Aadil, 2012. "The influence of financial leverage of firms on their international trading activities," MPRA Paper 35765, University Library of Munich, Germany.
    5. Jan Van Hove, 2010. "Variety and quality in intra‐European manufacturing trade: the impact of innovation and technological spillovers," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(1), pages 43-59.
    6. LATZER, Hélène & MAYNERIS, Florian, 2012. "Income distribution and vertical comparative advantage. Theory and evidence," LIDAM Discussion Papers CORE 2012034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Raphael A. Auer, 2013. "Product Heterogeneity, Cross-Country Taste Differences, and the Consumption Home Bias," Working Papers 13.01, Swiss National Bank, Study Center Gerzensee.
    8. Jasper Lukkezen & Coen Teulings, 2013. "Optimal fiscal policy," CPB Discussion Paper 242.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    9. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).
    10. John Sutton & Daniel Trefler, 2011. "Deductions from the Export Basket: Capabilities, Wealth and Trade," NBER Working Papers 16834, National Bureau of Economic Research, Inc.
    11. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 87-117.
    12. Valerie Smeets & Sharon Traiberman & Frederic Warzynski, 2013. "Offshoring and Patterns of Quality Growth: Evidence from Danish Apparel," Economics Working Papers 2013-25, Department of Economics and Business Economics, Aarhus University.
    13. Konstantins Benkovskis & Ramune Rimgailaite, 2011. "The quality and variety of exports from the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(4), pages 723-747, October.
    14. Jan Van Hove, 2010. "Variety and quality in intra-European manufacturing trade: the impact of innovation and technological spillovers," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(1), pages 43-59.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mary Amiti & Amit K. Khandelwal, 2013. "Import Competition and Quality Upgrading," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 476-490, May.
    2. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    3. Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
    4. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2012. "The Empirics of Firm Heterogeneity and International Trade," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 283-313, July.
    5. Jihyun Eum, 2018. "Upgrading Product Quality: The Impact of Tariffs and Standards," Working Papers 2018-10, Economic Research Institute, Bank of Korea.
    6. Maria Bas & Caroline Paunov, 2019. "What gains and distributional implications result from trade liberalization," Documents de travail du Centre d'Economie de la Sorbonne 19003, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    7. Bas, Maria & Strauss-Kahn, Vanessa, 2015. "Input-trade liberalization, export prices and quality upgrading," Journal of International Economics, Elsevier, vol. 95(2), pages 250-262.
    8. Olivier Cadot & Céline Carrère & Vanessa Strauss-Kahn, 2014. "OECD imports: diversification of suppliers and quality search," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(1), pages 1-24, February.
    9. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    10. Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    11. Bloom, Nick & Manova, Kalina & Teng Sun, Stephen & Van Reenen, John & Yu, Zhihong, 2018. "Managing trade: evidence from China and the US," LSE Research Online Documents on Economics 88703, London School of Economics and Political Science, LSE Library.
    12. Schetter, Ulrich & Schneider, Maik T. & Jäggi, Adrian, 2024. "Inequality, openness, and growth through creative destruction," Journal of Economic Theory, Elsevier, vol. 222(C).
    13. Emanuele Bacchiega & Antonio Minniti & Arsen Palestini, 2016. "Quality, distance and trade: A strategic approach," Papers in Regional Science, Wiley Blackwell, vol. 95, pages 165-191, March.
    14. Christopher Hansman & Jonas Hjort & Gianmarco León-Ciliotta & Matthieu Teachout, 2020. "Vertical Integration, Supplier Behavior, and Quality Upgrading among Exporters," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3570-3625.
    15. Sofia Anyfantaki & Sarantis Kalyvitis & Margarita Katsimi & Eirini Thomaidou, 2018. "Export pricing at the firm level with panel data," Working Papers 241, Bank of Greece.
    16. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    17. Picard, Pierre M. & Okubo, Toshihiro, 2012. "Firms' locations under demand heterogeneity," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 961-974.
    18. Crinò, Rosario & Ogliari, Laura, 2015. "Financial Frictions, Product Quality, and International Trade," CEPR Discussion Papers 10555, C.E.P.R. Discussion Papers.
    19. A. Auer, Raphael & Chaney, Thomas & Sauré, Philip, 2018. "Quality pricing-to-market," Journal of International Economics, Elsevier, vol. 110(C), pages 87-102.
    20. Sarantis Kalyvitis, 2015. "Who exports high-quality products? Some empirical regularities from Greek exporting firms," Working Papers 201, Bank of Greece.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • F1 - International Economics - - 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:cpr:ceprdp:7562. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.