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International Trade, Quality Sorting and Trade Costs: The Case of Cognac

Charlotte Emlinger () and Viola Lamani

Working Papers from CEPII research center

Abstract: This paper tests empirically the validity of the Alchian and Allen effect, using an original dataset of French Cognac exports by quality designations. More specifically we estimate the impact of trade costs on the share and relative price of high quality Cognac. The definition of quality, based on the minimum time in oak of the youngest eau-de-vie used in creating the blend, is subject to regulations and is constant and objective, which makes the case of Cognac particularly relevant to analyze the impact of different trade costs on the quality mix. Our estimation proceeds in two parts. First, we investigate to what extent distance and customs duties impact the Cognac quality mix from 1996 to 2013. Second, we assess the impact of a variation in trade costs, through the adoption of containerization, on the quality mix of Cognac exports between 1969 and 2013. Our results confirm the Alchian and Allen effect. We show that: (i) per-unit trade costs increase the share of high-quality Cognac and have the opposite impact on its relative price; (ii) ad-valorem charges impact negatively the share of high-quality Cognac and have a positive impact on its relative price.

Keywords: Quality Mix; Luxury Product; Distance; Tariffs (search for similar items in EconPapers)
JEL-codes: F10 F13 F14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur and nep-int
Date: 2017-10
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Working Paper: International Trade, Quality Sorting and Trade Costs: The Case of Cognac (2018) Downloads
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