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Competition and Quality Upgrading

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Listed author(s):
  • Amiti, Mary
  • Khandelwal, Amit

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7562.

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Date of creation: Nov 2009
Handle: RePEc:cpr:ceprdp:7562
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Keywords: Competition; Growth; Proximity to Frontier; Quality Upgrading;

Find related papers by JEL classification:

  • F1 - International Economics - - Trade

This paper has been announced in the following NEP Reports:

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  1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
  2. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  3. Kalina Manova & Zhiwei Zhang, 2012. "Export Prices Across Firms and Destinations," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 379-436.
  4. Laszlo Halpern & Miklos Koren & Adam Szeidl, 2005. "Import and Productivity," IEHAS Discussion Papers 0509, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  5. 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.
  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. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
  8. 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.
  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(02), pages 185-213, April.
  10. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 307-339.
  11. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  12. 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.
  13. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
  14. 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.
  15. 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.
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Cited by:

  1. 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.
  2. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  3. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," FIW Working Paper series 095, FIW.
  4. 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 & Francis Journals, vol. 13(1), pages 43-59.
  5. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 87-117.

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