Quality Differentiation, Comparative Advantage, and International Specialization Across Products
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CitationSchetter, Ulrich. “Quality Differentiation, Comparative Advantage, and International Specialization Across Products.” CID Research Fellow and Graduate Student Working Paper Series 2020.126, Harvard University, Cambridge, MA, April 2020.
AbstractWe introduce quality differentiation into a Ricardian model of international trade. We show that (1) quality differentiation allows industrialized countries to be active across the full board of products, complex and simple ones, while developing countries systematically specialize in simple products, in line with novel stylized facts. (2) Quality differentiation may thus help to explain why richer countries tend to be more diversified and why, increasingly over time, rich and poor countries tend to export the same products. (3) Quality differentiation implies that the gains from inter-product trade mostly accrue to developing countries. (4) Guided by our theory, we use a censored regression model to estimate the link between a country’s GDP per capita and its export quality. We find a much stronger relationship than when using OLS, in line with our theory.
Citable link to this pagehttps://nrs.harvard.edu/URN-3:HUL.INSTREPOS:37366849