IDEAS home Printed from https://ideas.repec.org/p/zbw/wtowps/ersd201413.html
   My bibliography  Save this paper

The determinants of quality specialization

Author

Listed:
  • Dingel, Jonathan I.

Abstract

A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy. Fajgelbaum, Grossman, and Helpman (JPE 2011) formalize the Linder (1961) conjecture that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant, high-income locations export skill-intensive, high-quality products (Schott, QJE 2004). Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on US manufacturing plants' shipments and factor inputs to quantify the two mechanisms' roles in quality specialization across US cities. Home-market demand explains at least as much of the relationship between income and quality as differences in factor usage.

Suggested Citation

  • Dingel, Jonathan I., 2014. "The determinants of quality specialization," WTO Staff Working Papers ERSD-2014-13, World Trade Organization (WTO), Economic Research and Statistics Division.
    • Handle: RePEc:zbw:wtowps:ersd201413
    DOI: 10.30875/03aec480-en
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/104760/1/797425942.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.30875/03aec480-en?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Giovanni Maggi & Gene M. Grossman, 2000. "Diversity and Trade," American Economic Review, American Economic Association, vol. 90(5), pages 1255-1275, December.
    2. Donald R. Davis & Jonathan I. Dingel, 2019. "A Spatial Knowledge Economy," American Economic Review, American Economic Association, vol. 109(1), pages 153-170, January.
    3. repec:clu:wpaper:0708-12 is not listed on IDEAS
    4. Justin Caron & Thibault Fally & James R. Markusen, 2021. "International Trade Puzzles: A Solution Linking Production And Preferences," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 11, pages 199-250, World Scientific Publishing Co. Pte. Ltd..
    5. 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.
    6. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    7. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2013. "Product and process productivity: Implications for quality choice and conditional exporter premia," Journal of International Economics, Elsevier, vol. 91(1), pages 53-67.
    8. Jorge De La Roca & Diego Puga, 2017. "Learning by Working in Big Cities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(1), pages 106-142.
    9. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2013. "Testing for Factor Price Equality with Unobserved Differences in Factor Quality or Productivity," American Economic Journal: Microeconomics, American Economic Association, vol. 5(2), pages 135-163, May.
    10. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    11. G. M.P. Swann, 2009. "The Economics of Innovation," Books, Edward Elgar Publishing, number 13211.
    12. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, vol. 43(2), pages 379-407, February.
    13. Enghin Atalay & Ali Horta?su & Chad Syverson, 2014. "Vertical Integration and Input Flows," American Economic Review, American Economic Association, vol. 104(4), pages 1120-1148, April.
    14. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    15. Ina Simonovska, 2015. "Income Differences and Prices of Tradables: Insights from an Online Retailer," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(4), pages 1612-1656.
    16. Benjamin Faber & Thibault Fally, 2022. "Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(3), pages 1420-1459.
    17. Matilde Bombardini & Giovanni Gallipoli & German Pupato, 2012. "Skill Dispersion and Trade Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2327-2348, August.
    18. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    19. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    20. Thomas J. Holmes & John J. Stevens, 2014. "An Alternative Theory of the Plant Size Distribution, with Geography and Intra- and International Trade," Journal of Political Economy, University of Chicago Press, vol. 122(2), pages 369-421.
    21. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2009. "Beyond the home market effect: Market size and specialization in a multi-country world," Journal of International Economics, Elsevier, vol. 79(2), pages 259-265, November.
    22. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    23. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
    24. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
    25. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    26. Arnaud Costinot & Jonathan Vogel, 2010. "Matching and Inequality in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 747-786, August.
    27. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, September.
    28. 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..
    29. Colin J. Hottman & Stephen J. Redding & David E. Weinstein, 2016. "Quantifying the Sources of Firm Heterogeneity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1291-1364.
    30. Ina Simonovska, 2009. "Income Differences and Prices of Tradables," 2009 Meeting Papers 692, Society for Economic Dynamics.
    31. Falvey, Rodney E., 1981. "Commercial policy and intra-industry trade," Journal of International Economics, Elsevier, vol. 11(4), pages 495-511, November.
    32. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 489-530.
    33. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    34. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September.
    35. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    36. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335522.
    37. Hillberry, Russell & Hummels, David, 2008. "Trade responses to geographic frictions: A decomposition using micro-data," European Economic Review, Elsevier, vol. 52(3), pages 527-550, April.
    38. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    39. Murphy, Kevin M. & Shleifer, Andrei, 1997. "Quality and trade," Journal of Development Economics, Elsevier, vol. 53(1), pages 1-15, June.
    40. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 209-239, February.
    41. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," Econometrica, Econometric Society, vol. 77(4), pages 1165-1192, July.
    42. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
    43. Russell Hillberry & David Hummels, 2003. "Intranational Home Bias: Some Explanations," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1089-1092, November.
    44. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    45. 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.
    46. Jessie Handbury & David E. Weinstein, 2015. "Goods Prices and Availability in Cities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(1), pages 258-296.
    47. Lugovskyy, Volodymyr & Skiba, Alexandre, 2015. "How geography affects quality," Journal of Development Economics, Elsevier, vol. 115(C), pages 156-180.
    48. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    49. Henderson, J. Vernon, 1991. "Urban Development: Theory, Fact, and Illusion," OUP Catalogue, Oxford University Press, number 9780195069020.
    50. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    51. Robert C. Feenstra & John Romalis, 2014. "International Prices and Endogenous Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(2), pages 477-527.
    52. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 77(2), pages 265-275, April.
    53. Jessie Handbury, 2019. "Are Poor Cities Cheap for Everyone? Non-Homotheticity and the Cost of Living Across U.S. Cities," NBER Working Papers 26574, National Bureau of Economic Research, Inc.
    54. Davis, Donald R. & Dingel, Jonathan I., 2020. "The comparative advantage of cities," Journal of International Economics, Elsevier, vol. 123(C).
    55. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
    56. Rebecca Diamond, 2016. "The Determinants and Welfare Implications of US Workers' Diverging Location Choices by Skill: 1980-2000," American Economic Review, American Economic Association, vol. 106(3), pages 479-524, March.
    57. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, July.
    58. Behrens, Kristian & Lamorgese, Andrea R. & Ottaviano, Gianmarco I.P. & Tabuchi, Takatoshi, 2009. "Beyond the home market effect: Market size and specialization in a multi-country world," Journal of International Economics, Elsevier, vol. 79(2), pages 259-265, November.
    59. Johan Torstensson, 1996. "Can factor proportions explain vertical intra-industry trade?," Applied Economics Letters, Taylor & Francis Journals, vol. 3(5), pages 307-309.
    60. Redding, Stephen, 1996. "The Low-Skill, Low-Quality Trap: Strategic Complementarities between Human Capital and R&D," Economic Journal, Royal Economic Society, vol. 106(435), pages 458-470, March.
    61. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    62. 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.
    63. 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.
    64. Claudia Bernasconi, 2013. "Similarity of income distributions and the extensive and intensive margin of bilateral trade flows," ECON - Working Papers 115, Department of Economics - University of Zurich.
    65. Holmes, Thomas J. & Stevens, John J., 2004. "Spatial distribution of economic activities in North America," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 63, pages 2797-2843, Elsevier.
    66. Sutton, John, 2012. "Competing in Capabilities: The Globalization Process," OUP Catalogue, Oxford University Press, number 9780199274536.
    67. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517, Elsevier.
    68. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
    69. Daniel Lederman & William F. Maloney, 2012. "Does What You Export Matter? In Search of Empirical Guidance for Industrial Policies," World Bank Publications - Books, The World Bank Group, number 9371.
    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. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    2. 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.
    3. Dorothee Hillrichs, 2023. "The global geography of income and export patterns," LIDAM Discussion Papers IRES 2023001, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    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. Alcalá, Francisco, 2016. "Specialization across goods and export quality," Journal of International Economics, Elsevier, vol. 98(C), pages 216-232.
    6. Latzer, Hélène & Mayneris, Florian, 2021. "Average income, income inequality and export unit values," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 625-646.
    7. Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.
    8. A. Auer, Raphael & Chaney, Thomas & Sauré, Philip, 2018. "Quality pricing-to-market," Journal of International Economics, Elsevier, vol. 110(C), pages 87-102.
    9. Lugovskyy, Volodymyr & Skiba, Alexandre, 2016. "Positive and negative effects of distance on export prices," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 155-181.
    10. 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.
    11. LATZER, Hélène & MAYNERIS, Florian, 2012. "Income distribution and vertical comparative advantage. Theory and evidence," LIDAM Discussion Papers CORE 2012034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Curzi, Daniele & Pacca, Lucia, 2015. "Price, quality and trade costs in the food sector," Food Policy, Elsevier, vol. 55(C), pages 147-158.
    13. Chen, Natalie & Juvenal, Luciana, 2022. "Markups, quality, and trade costs," Journal of International Economics, Elsevier, vol. 137(C).
    14. Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    15. Crinò, Rosario & Ogliari, Laura, 2015. "Financial Frictions, Product Quality, and International Trade," CEPR Discussion Papers 10555, C.E.P.R. Discussion Papers.
    16. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    17. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    18. Lashkaripour, Ahmad, 2020. "Discrete trade," Journal of International Economics, Elsevier, vol. 126(C).
    19. Kan Yue, 2021. "Estimating exporter's quality: Do importers agree on rankings?," The World Economy, Wiley Blackwell, vol. 44(2), pages 462-484, February.
    20. Irene Brambilla & Nicolas Depetris Chauvin & Guido Porto, 2015. "Wage and Employment Gains from Exports: Evidence from Developing Countries," Working Papers 2015-28, CEPII research center.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    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:zbw:wtowps:ersd201413. See general information about how to correct material in RePEc.

    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: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/wtoerch.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.