Working Paper: CEPR ID: DP8725
Authors: Hylke Vandenbussche; Francesco Di Comite; Laura Rovegno; Christian Viegelahn
Abstract: We apply a simple method to study the relative quality of Chinese versus European products exported in the clothing sector after the end of the Multi-Fiber Arrangement. Based on the model of Foster et al (2008), we interpret the relative change of export prices and quantities sold in narrowly defined product categories as an indicator of quality shifts. Using UN Comtrade data we find that European varieties exported to the US typically sell for a higher price than identical Chinese varieties exported to the US, but this price gap is narrowing. Despite rising prices, Chinese varieties are gaining market share. This opposite movement of relative prices and quantities sold in the same destination market are a strong indication of China moving up the quality ladder in its clothing exports relative to the EU. While European ?core? products in clothing are stable over time, Chinese exports show strong product dynamics with exit and entry of new ?core? products every year and ?core? products changing rapidly. Both China and the EU export in every product category, resulting in an almost perfect product overlap with almost no products being exported by only one of the two.
Keywords: Comtrade; Product-level exports; Quality
JEL Codes: F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| End of MFA (Y20) | Changes in export dynamics between the EU and China (F10) |
| Increase in market share for Chinese varieties (F62) | Rising prices of Chinese exports (F31) |
| Rising prices of Chinese exports (F31) | Quality improvements in Chinese exports (F14) |
| Simultaneous increase in prices and quantities sold for Chinese exports (F10) | Evidence of quality improvements (L15) |
| Convergence of prices between EU and Chinese products (F14) | Reduction in vertical differentiation (L22) |
| Intensified competition from Chinese products (F69) | Decline in market share for EU products (F61) |