New Evidence on Product Quality and Trade

Hasan Faruq ()
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Hasan Faruq: Indiana University Bloomington

No 2006-019, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: This paper examines why different countries export different qualities of products.Previous studies have attributed quality dispersion to differences in factor endowments while no empirical work has been done examining the effect of technology on quality. Using panel data on U.S. imports from 58 countries, we find that the export of high quality differentiated goods is associated with both higher stock of physical capital endowments and research and development (R&D) activities. We also observe that foreign direct investment (FDI) has a positive effect on quality, which is consistent with the literature on FDI and intra-industry trade. These results cannot be replicated by using the reduced form OLS price regression which is commonly used in the literature. Instead, we use a two-equation system in price and quantity to identify the determinants of quality.

Keywords: Product Quality; Differentiated Products; Heckscher-Ohlin Model; R&D (search for similar items in EconPapers)
JEL-codes: F11 L15 Q16 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2006-11
New Economics Papers: this item is included in nep-int and nep-mic
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2006019

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