Working Paper: NBER ID: w15503
Authors: Mary Amiti; Amit K. Khandelwal
Abstract: It is important to understand the factors that influence a country's transition from the production of low-quality to high-quality products since the production of high-quality goods is often viewed as a pre-condition for export success and, ultimately, for economic development. In this paper, we provide the first evidence that countries' import tariffs affect the rate at which they upgrade the quality of their products. We analyze the effect of import competition on quality upgrading using highly disaggregated export data to the U.S. from fifty-six countries in 10,000 products using a novel approach to measure quality. As predicted by recent distance to the frontier models, we find that lower tariffs are associated with quality upgrading for products close to the world quality frontier, whereas lower tariffs discourage quality upgrading for products distant from the frontier.
Keywords: Import Competition; Quality Upgrading; Economic Development; Trade Policy
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower import tariffs (F14) | enhanced quality upgrading for products near the world quality frontier (L15) |
| lower import tariffs (F14) | discouraged quality upgrading for products distant from the world quality frontier (L15) |
| lower import tariffs (F14) | need for higher tariffs to protect rents for quality upgrading (for products distant from the frontier) (L15) |