IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03211405.html
   My bibliography  Save this paper

Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization

Author

Listed:
  • Maria Bas

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Caroline Paunov

    (OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)

Abstract

This paper tests for the production complementarity between firms' access to high-quality intermediate inputs and their skill composition and their joint impact on output quality. Using census data at firm-product level for Ecuador for 1997–2007, we exploit exogenous tariff changes at Ecuador's entry to the World Trade Organization to show that input tariff cuts allow firms to upgrade their input quality. Next, we demonstrate by means of within-firm instrumental variable estimations that firms' choices of imported input quality drive their relative demand for skilled labor and the skill premium. Imported input quality and firms' skill-composition jointly boost firms' output quality. Moreover, we show that firms that source domestic inputs produced by industries that import high-quality inputs also upgrade their skills and output quality. Our findings are not driven by our measures of quality, foreign demand shocks (export opportunities), Ecuador's financial crisis, real exchange rate variations, financial liberalization and other industry-level reforms.

Suggested Citation

  • Maria Bas & Caroline Paunov, 2021. "Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization," Post-Print hal-03211405, HAL.
    • Handle: RePEc:hal:journl:hal-03211405
    DOI: 10.1016/j.jdeveco.2021.102668
    Note: View the original document on HAL open archive server: https://hal.science/hal-03211405
    as

    Download full text from publisher

    File URL: https://hal.science/hal-03211405/document
    Download Restriction: no
    File URL: https://libkey.io/10.1016/j.jdeveco.2021.102668?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amiti, Mary & Cameron, Lisa, 2012. "Trade Liberalization and the Wage Skill Premium: Evidence from Indonesia," Journal of International Economics, Elsevier, vol. 87(2), pages 277-287.
    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. repec:clu:wpaper:0708-12 is not listed on IDEAS
    4. David Atkin & Azam Chaudhry & Shamyla Chaudry & Amit K. Khandelwal & Eric Verhoogen, 2017. "Organizational Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1101-1164.
    5. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    6. Fan, Haichao & Li, Yao Amber & Yeaple, Stephen R., 2018. "On the relationship between quality and productivity: Evidence from China's accession to the WTO," Journal of International Economics, Elsevier, vol. 110(C), pages 28-49.
    7. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2013. "Product and process productivity: Implications for quality choice and conditional exporter premia," Journal of International Economics, Elsevier, vol. 91(1), pages 53-67.
    8. Ulrich Doraszelski & Jordi Jaumandreu, 2018. "Measuring the Bias of Technological Change," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1027-1084.
    9. 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.
    10. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    11. Maria Bas & Vanessa Strauss-Kahn, 2013. "Input-Trade Liberalization, Export Prices and Quality Upgrading," Working Papers hal-03460775, HAL.
    12. Koren, Miklós & Csillag, Márton, 2011. "Machines and machinists: Capital-skill complementarity from an international trade perspective," CEPR Discussion Papers 8317, C.E.P.R. Discussion Papers.
    13. Mr. Luis Ignacio Jácome, 2004. "The Late 1990's Financial Crisis in Ecuador: Institutional Weaknesses, Fiscal Rigidities, and Financial Dollarization At Work," IMF Working Papers 2004/012, International Monetary Fund.
    14. James Harrigan & Ariell Reshef & Farid Toubal, 2018. "Techies, Trade, and Skill-Biased Productivity," NBER Working Papers 25295, National Bureau of Economic Research, Inc.
    15. 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.
    16. 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.
    17. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    18. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
    19. Maria Bas, 2012. "Input-trade liberalization and firm export decisions: Evidence from Argentina," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01297739, HAL.
    20. 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.
    21. Harrigan, James & Ma, Xiangjun & Shlychkov, Victor, 2015. "Export prices of U.S. firms," Journal of International Economics, Elsevier, vol. 97(1), pages 100-111.
    22. Bas, Maria & Paunov, Caroline, 2021. "Disentangling trade reform impacts on firm market and production decisions," European Economic Review, Elsevier, vol. 135(C).
    23. 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.
    24. 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.
    25. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    26. Ana M. Fernandes & Caroline Paunov, 2013. "Does trade stimulate product quality upgrading?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(4), pages 1232-1264, November.
    27. Maria Bas & Caroline Paunov, 2019. "What gains and distributional implications result from trade liberalization?," Post-Print halshs-02052739, HAL.
    28. Haichao Fan & Yao Amber Li & Stephen R. Yeaple, 2015. "Trade Liberalization, Quality, and Export Prices," The Review of Economics and Statistics, MIT Press, vol. 97(5), pages 1033-1051, December.
    29. Amit K. Khandelwal & Peter K. Schott & Shang-Jin Wei, 2013. "Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters," American Economic Review, American Economic Association, vol. 103(6), pages 2169-2195, October.
    30. Ricardo Hausmann & César Hidalgo, 2011. "The network structure of economic output," Journal of Economic Growth, Springer, vol. 16(4), pages 309-342, December.
    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. Mary Amiti & Donald R. Davis, 2012. "Trade, Firms, and Wages: Theory and Evidence," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 1-36.
    33. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 477-527.
    34. Manova, Kalina & Yu, Zhihong, 2017. "Multi-product firms and product quality," Journal of International Economics, Elsevier, vol. 109(C), pages 116-137.
    35. Ana Cecília Fieler & Marcela Eslava & Daniel Yi Xu, 2018. "Trade, Quality Upgrading, and Input Linkages: Theory and Evidence from Colombia," American Economic Review, American Economic Association, vol. 108(1), pages 109-146, January.
    36. Martin, Julien, 2012. "Markups, quality, and transport costs," European Economic Review, Elsevier, vol. 56(4), pages 777-791.
    37. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    38. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    39. Caroline Paunov, 2011. "Imports, Innovation and Employment after Crisis: Evidence from a Developing Country," OECD Science, Technology and Industry Working Papers 2011/5, OECD Publishing.
    40. Bas, Maria, 2012. "Input-trade liberalization and firm export decisions: Evidence from Argentina," Journal of Development Economics, Elsevier, vol. 97(2), pages 481-493.
    41. Fernando Parro, 2013. "Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 72-117, April.
    42. Chen, Bo & Yu, Miaojie & Yu, Zhihao, 2017. "Measured skill premia and input trade liberalization: Evidence from Chinese firms," Journal of International Economics, Elsevier, vol. 109(C), pages 31-42.
    43. Paulo Bastos & Joana Silva & Eric Verhoogen, 2018. "Export Destinations and Input Prices," American Economic Review, American Economic Association, vol. 108(2), pages 353-392, February.
    44. 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.
    45. 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.
    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. Sena Kimm Gnangnon, 2023. "Effect of the Shadow Economy on Tax Reform in Developing Countries," Economies, MDPI, vol. 11(3), pages 1-49, March.
    2. Shrimoyee Ganguly & Rajat Acharyya, 2024. "Money, exchange rate and export quality," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 33(1), pages 118-144, January.
    3. Xuefeng Wang & Ling Zhu & Haiyun Liu, 2024. "Effects of foreign direct investment in services on input imports of manufacturing firms: Evidence from China," Review of International Economics, Wiley Blackwell, vol. 32(3), pages 1434-1461, August.
    4. Maria Bas & Lionel Fontagné & Irene Iodice & Gianluca Orefice & Lionel Gérard Fontagné, 2025. "Heterogeneous Trade Elasticity and Managerial Skills," CESifo Working Paper Series 11750, CESifo.
    5. Fidrmuc, Jan & Gaibulloev, Khusrav & Mirzaei, Ali & Moore, Tomoe, 2024. "The effect of capital inflows on the imports of capital goods in developing countries," Journal of Corporate Finance, Elsevier, vol. 84(C).
    6. Qian Feng & Hong Liu & Yuwei Liu & Hengyuan Zhao, 2023. "Selecting a Technological Progress Path and Upgrading Export Product Quality: Evidence From China," SAGE Open, , vol. 13(4), pages 21582440231, November.
    7. Ganguly, Shrimoyee & Acharyya, Rajat, 2022. "Devaluation, Export Quality and Employment in A Small Dependent Economy," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(1), pages 137-165, March.
    8. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    9. Eyayu Tesfaye Mulugeta & Måns Söderbom, 2024. "Imported inputs and firm productivity: does foreign ownership matter?," International Economics and Economic Policy, Springer, vol. 21(3), pages 685-704, July.
    10. John Gilbert & Onur A. Koska & Reza Oladi, 2023. "Foreign market entry, upstream market power, and endogenous mode of downstream competition," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 341-362, February.
    11. Cui, Guanghui & Zhang, Yi & Ma, Jingwen & Yao, Wenyun, 2023. "Does environmental regulation affect the labor income share of manufacturing enterprises? Evidence from China," Economic Modelling, Elsevier, vol. 123(C).
    12. Maria Bas & Vanessa Strauss-Kahn, 2024. "Lower prices or higher quality? Firms’ response to increased competition following trade liberalization," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 279-309, May.
    13. Bastos,Paulo S. R. & Castro,Lucio & Vargas Da Cruz,Marcio Jose, 2024. "The Quality and Price of Africa’s Imports of Digital Goods," Policy Research Working Paper Series 10718, The World Bank.

    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. 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.
    2. Bas, Maria & Paunov, Caroline, 2021. "Disentangling trade reform impacts on firm market and production decisions," European Economic Review, Elsevier, vol. 135(C).
    3. Adriana Peluffo & Juan Ignacio Scasso, 2016. "Destination and source countries: Do they have a role on product quality?," Documentos de Trabajo (working papers) 16-10, Instituto de Economía - IECON.
    4. Peluffo Adriana & Scasso Juan, 2023. "The Role of Trade Partners on Product Quality: The case of Uruguay," Asociación Argentina de Economía Política: Working Papers 4681, Asociación Argentina de Economía Política.
    5. 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.
    6. 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.
    7. Maria Bas & Vanessa Strauss-Kahn, 2024. "Lower prices or higher quality? Firms’ response to increased competition following trade liberalization," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(2), pages 279-309, May.
    8. Copestake, Alexander & Zhang, Wenzhang, 2023. "Inputs, networks and quality-upgrading: Evidence from China in India," China Economic Review, Elsevier, vol. 77(C).
    9. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    10. 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.
    11. Fan, Haichao & Li, Yao Amber & Yeaple, Stephen R., 2018. "On the relationship between quality and productivity: Evidence from China's accession to the WTO," Journal of International Economics, Elsevier, vol. 110(C), pages 28-49.
    12. Sofia Anyfantaki & Sarantis Kalyvitis & Margarita Katsimi & Eirini Thomaidou, 2018. "Export pricing at the firm level with panel data," Working Papers 241, Bank of Greece.
    13. Torres Mazzi, Caio & Foster-McGregor, Neil, 2021. "Imported intermediates, technological capabilities and exports: Evidence from Brazilian firm-level data," Research Policy, Elsevier, vol. 50(1).
    14. Campbell, Jason, 2024. "The link between import sources and export success: Evidence from China," International Economics, Elsevier, vol. 178(C).
    15. Irene Brambilla & Nicolas Depetris Chauvin & Guido Porto, 2015. "Wage and Employment Gains from Exports: Evidence from Developing Countries," Working Papers 2015-28, CEPII research center.
    16. Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.
    17. Hayakawa, Kazunobu & Mukunoki, Hiroshi & Yang, Chih-hai, 2020. "Liberalization for services FDI and export quality: Evidence from China," Journal of the Japanese and International Economies, Elsevier, vol. 55(C).
    18. Juan de Lucio & Raúl Mínguez & Asier Minondo & Francisco Requena, 2018. "The variation of export prices across and within firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 154(2), pages 327-346, May.
    19. Manova, Kalina & Yu, Zhihong, 2017. "Multi-product firms and product quality," Journal of International Economics, Elsevier, vol. 109(C), pages 116-137.
    20. Crinò, Rosario & Ogliari, Laura, 2015. "Financial Frictions, Product Quality, and International Trade," CEPR Discussion Papers 10555, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Foreign input quality; Input-skill complementarity; Skill intensity and skill premium; Output product quality; Input tariff reductions; Firm-product-level data; Ecuador;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

    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:hal:journl:hal-03211405. 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: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.