Estimating Cross-Country Differences in Product Quality
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.
Special thanks to Alan Deardorff for many fruitful discussions. We also thank Steve Berry, Keith Chen, Rob Feenstra, James Harrigan, Justin McCrary, Phil Haile, Amit Khandelwal, Keith Maskus, Peter Neary, Serena Ng, Ben Polak, Marshall Reinsdorff, Matthew Shapiro, Beata Javornik, Walter Sosa Escudero, and seminar participants at Chicago, Dartmouth, Di Tella, EIIT, IMF, LSE, Maryland, Michigan, Microeconomics of Growth Network, NBER, Penn State, Princeton, San Andrés, UCLA, UCSD and Yale. Alejandro Molnar and Santiago Sautua provided superb research assistance. This research is supported by the National Science Foundation under Grants No. 0241474 and 0550190. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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. citation courtesy of