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

Listed author(s):
  • Bernardo Blum
  • Sebastian Claro
  • Kunal Dasgupta
  • Ignatius Horstmann

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.

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File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-556.pdf
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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-556.

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Length: Unknown pages
Date of creation: 11 Mar 2016
Handle: RePEc:tor:tecipa:tecipa-556
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  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, 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. 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.
  6. 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.
  7. 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, 06.
  8. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  9. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
  10. 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.
  11. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
  12. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  13. Bruce A. Blonigen & Wesley W. Wilson, 2008. "Port Efficiency and Trade Flows," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 21-36, 02.
  14. 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.
  15. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
  16. 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.
  17. 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.
  18. 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.
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