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The Desire for (Danish) Quality in High and Low Income Countries

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  • Daniel X. Nguyen

    (Department of Economics, University of Copenhagen)

Abstract

We estimate the correlation between firm prices and sales within a CN8 product-country-year market. We do this for every market to which at least 16 different Danish firms exported between 1999 and 2006. Approximately 60% of Danish exports are to markets in which the price is negatively correlated with sales. These correlations are significantly different across destination countries within product categories, but across years for a given product-destination pair. While some existing theories perform better than others at predicting these patterns, none can reconcile the variation across countries. To fully explain the patterns, We introduce a model in which the price-sales correlation can be interpreted as the market's desire for high quality goods over low cost substitutes. We discover an inverted U shaped relation between a country's desire for quality and its per capita GDP, which we term a Quality Kuznets Curve. This curve has a turning point around 10 000 Euros for Danish exports. The Quality Kuznets Curve appears both when looking across products and within products.

Suggested Citation

  • Daniel X. Nguyen, 2011. "The Desire for (Danish) Quality in High and Low Income Countries," Discussion Papers 11-06, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:1106
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2011/1106.pdf/
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    References listed on IDEAS

    as
    1. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    2. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," Working Papers 09-13, Center for Economic Studies, U.S. Census Bureau.
    3. 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.
    4. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    exports; firm heterogeneity; quality; productivity; Kuznets;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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