Working Paper: NBER ID: w9023
Authors: David Hummels; Alexandre Skiba
Abstract: We model demand for quality differentiated goods to derive a relationship between trade costs and the quality composition of trade. Detailed data on traded goods' prices, quantities and shipping costs for many importers and exporters are used to test these predictions. These data provide a strong rejection of the iceberg assumption on transportation costs and a strong confirmation of the classical Alchian Allen hypothesis. Within a narrowly defined commodity classification, exporters charge destination-varying prices that co-vary positively with shipping costs and negatively with tariffs. Shipping costs operate as a quantitative restriction similar to quotas.
Keywords: Alchian-Allen conjecture; shipping costs; quality composition of trade; international trade
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Shipping costs (L87) | Quality composition of trade (F10) |
| Higher shipping costs (L87) | Greater share of high-quality goods being exported (F14) |
| Shipping costs (L87) | Average observed import price (F14) |
| Ad valorem tariffs (H25) | Relative demand for high-quality goods (D11) |
| Shipping costs per unit (L87) | Alchian-Allen effect (D89) |
| Exporters charge destination-varying prices (F14) | Shipping costs (L87) |