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The Long and Short (of) Quality Ladders

  • Amit Khandelwal

    (Yale University)

Quality specialization may help insulate workers in developed countries from low-wage country competition by weakening the convergence in goods and factor prices implied by international trade. I develop a model in which vulnerability to low-wage country competition decreases with a product market's degree of vertical differentiation. To test the implications of this model, I measure countries' export quality by exploiting both price and market share information, which contrasts to earlier work that uses only price data. The quality estimates reveal that product markets vary widely in their degree of vertical differentiation, measured by the range of qualities observed in the market. The variation in the lengths of these products' "quality ladders" indicates that quality specialization is more feasible in some product markets than in others. Consistent with the model, the impact of low-wage import penetration on U.S. manufacturing employment is weaker in industries characterized by longer quality ladders. This evidence suggests that product quality is an important factor for understanding how international trade affects firms and workers.

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Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 244.

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Date of creation: 2007
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Handle: RePEc:red:sed007:244
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