Skill-Based Quality Upgrading and International Trade

Peter Egger, Stefani Stefanova and Davide Suverato

No 20851, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a new quantitative trade model in which consumers value quality and monopolistically competitive firms charge variable markups and allocate skill-specific labor between production and quality-upgrading innovation. Building on existing literature that documents frictions in the assessment of imported goods' quality, we model these as non-ad-valorem trade barriers that distort incentives for quality upgrading and find strong evidence of this mechanism in the model's structural estimation. Quantifying the multi-country, multi-sector, general-equilibrium model for 26 European economies, we compare counterfactual increases in ad-valorem and non-ad-valorem trade barriers and assess their effects on selection, efficiency, quality, skill premium, and welfare.

Keywords: Quantitative trade models; Quality; Variable markups; Skill premium (search for similar items in EconPapers)
JEL-codes: F12 F14 O14 O31 (search for similar items in EconPapers)
Date: 2025-11
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