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Comparative Advantage and the Quality Choice of Heterogeneous Firms

Author

Listed:
  • Dongzhe Zhang

    (Department of Economics, University of Sussex Business School, UK)

  • Antonio Navas

    (Department of Economics, University of Sheffield, Sheffield S1 4DT, UK)

  • Ian Gregory-Smith

    (Department of Economics, Newcastle University, UK)

Abstract

This paper examines how trade openness affects firms’ product quality across industries based on a country’s comparative advantage. We develop a Heckscher-Ohlin model with heterogeneous firms and endogenous quality upgrading. Trade openness affects a firm’s product quality differ- ently within an industry based on the firm’s export status. In particular, trade openness increases exporters’ product quality and reduces the quality from non-exporting firms. These effects are not homogeneous across industries; they are more pronounced in a country’s comparative advan- tage industry. We test the main predictions of the model using transaction-level data of Chinese exports. Consistent with our theoretical predictions, we find that Chinese exporters export higher quality products in those industries in which China reveals a comparative advantage.

Suggested Citation

  • Dongzhe Zhang & Antonio Navas & Ian Gregory-Smith, 2023. "Comparative Advantage and the Quality Choice of Heterogeneous Firms," Working Papers 2023022, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2023022
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    File URL: https://www.sheffield.ac.uk/economics/research/serps
    File Function: First version, December 5 2023
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    More about this item

    Keywords

    Heterogeneous Firms; Product Quality; Comparative Advantage;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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