NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating Cross-Country Differences in Product Quality

Juan Carlos Hallak, Peter K. Schott

NBER Working Paper No. 13807
Issued in February 2008
NBER Program(s):   ITI

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.

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Published: Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.

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