Product quality and intra-industry trade

Ito Tadashi and Toshihiro Okubo

No 478, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: In this study, we argue that the conventional intra-industry trade (IIT) index does not address the quality issue directly and propose a methodology to make full use of unit-price gap information to deduce quality differences between simultaneously exported and imported products. By applying this measure to German trade data at the eight-digit level, we study the quality improvement of Chinese export goods in its IIT with Germany. We compare the case of China with those of Eastern European countries, which are also major trading partners of Germany. Our results show that the unit-value difference in IIT between Germany and Eastern European countries is clearly narrowing. However, China's export prices to Germany are much lower than Germany's export prices to China, and this gap has not narrowed over the last 23 years. This is at odds with the common perception that China's product quality has improved, as documented by Rodrik (2006) and Schott (2008). Our results support Xu (2010), which argued that incorporating the quality aspect of the exported goods weakens or even eliminates the evidence of the sophistication of Chinese export goods in Rodrik (2006).

Keywords: China; East Europe; Germany; International trade; Exports; Product quality; Intra-Industry Trade (search for similar items in EconPapers)
JEL-codes: F15 (search for similar items in EconPapers)
Date: 2014-09-01
New Economics Papers: this item is included in nep-int and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 478. 2014-09-01

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https://ir.ide.go.jp/record/37698/files/IDP000478_001.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: PRODUCT QUALITY AND INTRA-INDUSTRY TRADE (2016)
Working Paper: Product Quality and Intra-Industry Trade (2014)
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