Working Paper: NBER ID: w8492
Authors: Peter K. Schott
Abstract: Unit values of US imports at the product level reveal a substantial degree of vertical product differentiation among countries exporting to the US. This specialization is not apparent by looking solely at trade flows. Two trends stand out. First, the portion of US import products originating in either rich or poor countries exclusively has fallen dramatically as US trade barriers have fallen, from 41% in 1972 to 17% in 1994. Indeed, by 1994, nearly three quarters the products imported into the US were sourced simultaneously from rich and poor countries. Second, within-product unit value dispersion is positively and significantly correlated with source country income: men's shirts imported from Japan in 1994, for example, are about thirty times as expensive as shirts originating in the Philippines. These unit value premia, and their increase over time, are consistent with the factor proportions framework but convey a stark warning: industry trade flow data alone are too coarse to meet the assumptions underlying most tests of trade theory.
Keywords: trade specialization; vertical differentiation; product-level data; international trade
JEL Codes: F11; F14; F2; C21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| source country income (F40) | unit value dispersion of imports (F14) |
| rich countries' products (O51) | higher unit values (D46) |
| trade policy changes (F13) | product specialization (L68) |
| decrease in trade barriers (F19) | overlap of imported goods from rich and poor countries (F61) |
| unit values (D46) | income level of exporting country (F14) |