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New Evidence on Product Quality and Trade

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  • Hasan Faruq

    (Indiana University Bloomington)

Abstract

This paper examines why different countries export different qualities of products.Previous studies have attributed quality dispersion to differences in factor endowments while no empirical work has been done examining the effect of technology on quality. Using panel data on U.S. imports from 58 countries, we find that the export of high quality differentiated goods is associated with both higher stock of physical capital endowments and research and development (R&D) activities. We also observe that foreign direct investment (FDI) has a positive effect on quality, which is consistent with the literature on FDI and intra-industry trade. These results cannot be replicated by using the reduced form OLS price regression which is commonly used in the literature. Instead, we use a two-equation system in price and quantity to identify the determinants of quality.

Suggested Citation

  • Hasan Faruq, 2006. "New Evidence on Product Quality and Trade," CAEPR Working Papers 2006-019, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2006019
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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2006-019.pdf
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    References listed on IDEAS

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    Cited by:

    1. Goetz Zeddies, 2012. "International trade patterns and labour markets – an empirical analysis for EU member states," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 4(1/2), pages 96-115.
    2. Bacchiega, Emanuele & Minniti, Antonio, 2009. "The Quality-Income effect and the selection of location," Journal of Urban Economics, Elsevier, vol. 65(2), pages 209-215, March.
    3. Johansson, Börje & Johansson, Sara & Wallin, Tina, 2013. "Internal and External Knowledge – Innovation of Export Varieties," Working Paper Series in Economics and Institutions of Innovation 297, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    4. Zeddies, Götz, 2010. "International Trade Patterns and Labor Markets – An Empirical Analysis for EU Member States," IWH Discussion Papers 15/2010, Halle Institute for Economic Research (IWH).
    5. BOJNEC, Stefan & FERTO, Imre, 2009. "Determinants of agro-food trade competition of Central European countries with the European Union," China Economic Review, Elsevier, vol. 20(2), pages 327-337, June.

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    More about this item

    Keywords

    Product Quality; Differentiated Products; Heckscher-Ohlin Model; R&D;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services

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