Working Paper: NBER ID: w13807
Authors: Juan Carlos Hallak; Peter K. Schott
Abstract: We develop a method for decomposing countries' observed export prices into quality versus quality-adjusted-price components using information contained in their trade balances. Holding observed export prices constant, countries with surpluses are inferred to offer higher quality than countries running deficits. Our method accounts for variation in trade balances induced by horizontal and vertical differentiation. We use our method to examine manufacturing product quality among the world's top exporters from 1989 to 2003. We find that the initial quality gap between high- and low-income countries is smaller than their initial income gap, and that the former narrows considerably faster over time.
Keywords: product quality; international trade; economic development
JEL Codes: F1; F2; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade surplus (F14) | Higher product quality (L15) |
| Economic growth (O49) | Improvements in product quality (L15) |
| Raw export prices (Q02) | Quality differences (L15) |