IDEAS home Printed from https://ideas.repec.org/p/tor/tecipa/tecipa-556.html
   My bibliography  Save this paper

Distribution Costs, Product Quality, and Cross-Country Income Differences

Author

Listed:
  • Bernardo Blum
  • Sebastian Claro
  • Kunal Dasgupta
  • Ignatius Horstmann

Abstract

We show that the efficiency of countries’ distribution systems help determine the quality of goods produced and traded, i.e., is a source of comparative advantage in quality. Using the structure of our model and shipment-level imports data from Chile, we estimate the efficiency of trade distribution systems for a sample of 86 countries. We find that the implied efficiency of distribution systems vary widely across countries, with the 90th percentile value of per- shipment costs being almost 150 percent larger than the 10th percentile value. After calibrating the parameters of the model, we show that differences in the efficiency of distribution systems can generate more than half of the observed (in the data) elasticity of export prices with respect to per capita income. Moreover, the welfare effects of reducing inefficiencies in distribution systems via quality upgrading are larger than the effects via trade volumes.

Suggested Citation

  • Bernardo Blum & Sebastian Claro & Kunal Dasgupta & Ignatius Horstmann, 2016. "Distribution Costs, Product Quality, and Cross-Country Income Differences," Working Papers tecipa-556, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-556
    as

    Download full text from publisher

    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-556.pdf
    File Function: Main Text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "Inventories, Lumpy Trade, and Large Devaluations," American Economic Review, American Economic Association, vol. 100(5), pages 2304-2339, December.
    2. Kropf, Andreas & Sauré, Philip, 2014. "Fixed costs per shipment," Journal of International Economics, Elsevier, vol. 92(1), pages 166-184.
    3. Redding, Stephen J. & Turner, Matthew A., 2015. "Transportation Costs and the Spatial Organization of Economic Activity," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1339-1398, Elsevier.
    4. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    5. 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.
    6. Guasch, J. Luis & Kogan, Joseph, 2001. "Inventories in developing countries : levels and determinants - a red flag for competitiveness and growth," Policy Research Working Paper Series 2552, The World Bank.
    7. Pol Antràs & Teresa C. Fort & Felix Tintelnot, 2017. "The Margins of Global Sourcing: Theory and Evidence from US Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2514-2564, September.
    8. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    9. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
    10. James R. Markusen, 2021. "Explaining the Volume of Trade: An Eclectic Approach," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 9, pages 177-186, World Scientific Publishing Co. Pte. Ltd..
    11. Robert C. Feenstra & Hong Ma, 2014. "Trade Facilitation and the Extensive Margin of Exports," The Japanese Economic Review, Japanese Economic Association, vol. 65(2), pages 158-177, June.
    12. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
    13. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
    14. Bergstrand, Jeffrey H, 1990. "The Heckscher-Ohlin-Samuelson Model, the Linder Hypothesis and the Determinants of Bilateral Intra-industry Trade," Economic Journal, Royal Economic Society, vol. 100(403), pages 1216-1229, December.
    15. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
    16. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
    17. John Sutton & Daniel Trefler, 2016. "Capabilities, Wealth, and Trade," Journal of Political Economy, University of Chicago Press, vol. 124(3), pages 826-878.
    18. Bruce A. Blonigen & Wesley W. Wilson, 2008. "Port Efficiency and Trade Flows," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 21-36, February.
    19. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
    20. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 129(2), pages 477-527.
    21. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    22. 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.
    23. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-822, December.
    Full references (including those not matched with items on IDEAS)

    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. A. Auer, Raphael & Chaney, Thomas & Sauré, Philip, 2018. "Quality pricing-to-market," Journal of International Economics, Elsevier, vol. 110(C), pages 87-102.
    2. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    3. Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.
    4. Jonathan Eaton & Ana Cecília Fieler, 2019. "The Margins of Trade," NBER Working Papers 26124, National Bureau of Economic Research, Inc.
    5. Ana P. Fernandes & Heiwai Tang, 2020. "Fast Fashion: Theory and Evidence from Portuguese Textile and Clothing Firms," CESifo Working Paper Series 8125, CESifo.
    6. Chen, Natalie & Juvenal, Luciana, 2019. "Markups, Quality, and Trade Costs," CAGE Online Working Paper Series 446, Competitive Advantage in the Global Economy (CAGE).
    7. Chen, Natalie & Juvenal, Luciana, 2018. "Quality and the Great Trade Collapse," Journal of Development Economics, Elsevier, vol. 135(C), pages 59-76.
    8. Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    9. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    10. Crinò, Rosario & Ogliari, Laura, 2015. "Financial Frictions, Product Quality, and International Trade," CEPR Discussion Papers 10555, C.E.P.R. Discussion Papers.
    11. Lisandra Flach & Eckhard Janeba, 2017. "Income inequality and export prices across countries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(1), pages 162-200, February.
    12. Adina Ardelean & Volodymyr Lugovskyy, 2015. "Technology, Trade, and Quality Slopes," CAEPR Working Papers 2015-004, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    13. Anwar, Sajid & Sun, Sizhong, 2018. "Foreign direct investment and export quality upgrading in China's manufacturing sector," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 289-298.
    14. Andrea Ciani, 2021. "Income inequality and the quality of imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 375-416, May.
    15. Štefan Bojnec & Imre Fertő, 2017. "Quality Upgrades of EU Agri-Food Exports," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(1), pages 269-279, February.
    16. Chen, Natalie & Juvenal, Luciana, 2016. "Quality, trade, and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 100(C), pages 61-80.
    17. Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
    18. Jennie Bai & Jia Guo & Benjamin R. Mandel, 2013. "Going global: markups and product quality in the Chinese art market," Staff Reports 614, Federal Reserve Bank of New York.
    19. 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).
    20. 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.

    More about this item

    Keywords

    Distribution cost; per-shipment cost; quality; comparative advantage;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

    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:tor:tecipa:tecipa-556. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    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: RePEc Maintainer (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.